To paraphrase Charles Dickens in “A Tale of Two Cities,” many think that 2017 may be the best of times, while others think it will be the worst of times. And only the passage of time will tell.
But for insurance and finance professionals, a wait-and-see strategy is not likely to be effective; they need to plan ahead.
Although no one has a true crystal ball, New York City-based Marsh has released its annual state of the Financial and Professional (FINPRO) liability insurance market. From cyber risk to the changing regulatory landscape to increasing liability challenges for directors and officers, risks continue to evolve within the financial and professional liability insurance marketplace, the report notes.
Here are the trends that The U.S. Financial and Professional Market in 2017: Our Top 10 List sees as what’s in store for the year ahead.
1. D&O rate decreases to continue
Public directors and officers (D&O) liability insurance rates are expected to keep falling in 2017, continuing nine straight quarters of rate decreases. However, as seen in the third quarter of 2016, the rate of decline will likely continue to moderate incrementally.
Although there was a spike in federal filings in 2016, the impact from those claims will take months, if not years, to be reflected in insurance rates.
(Photo: Claims Magazine)
2. Broader D&O policies
The days of “pure” individual D&O coverage are gone, according to the report. Insurers will likely continue to broaden and differentiate their D&O offerings to remain competitive. Some options include the following:
- Providing or improving entity investigation cost coverage, possibly to include non-formal investigations.
- Adding reinstatement of limits for full coverage.
- Excess insurers reimbursing an insured a percentage of their retention if they’re able to successfully obtain an early. securities class action dismissal with prejudice.
- Continuing increases in excess derivative investigative cost sublimits.
(Photo: AP/Andrew Harnik)
3. Changing securities regulation
Securities regulations and resulting enforcement and claims will likely change under President Donald Trump’s administration and a Republican-controlled Congress. According to the report, some type of deregulation for financial institutions and other organizations is likely. This could come in the form of fewer corporate penalties while continuing to hold culpable individuals accountable.
It’s also likely that the U.S. Securities and Exchange Commission (SEC) whistleblower program will continue in some form — possibly requiring whistleblowers to first report purported wrongful conduct internally.
Although deregulation may ease the regulatory burden on businesses in an effort to stimulate growth, it could lead to a rise in resulting claims due to a potential decrease in transparency and mandated corporate guidelines.
4. Activism on the rise
Shareholder activism has become one of the most important issues confronting corporate officials. Shareholder activism in the U.S. and abroad is increasing as shareholders continue to influence corporate conduct and decision making.
However, activism is not just limited to shareholders, the report notes. For example, with recent environmental activism in the energy sector, shareholders and regulators are targeting companies and directors for purported failures to accurately disclose climate-change-related risks to investors. Regardless of the type of activism involved, the result will likely be an increase in litigation and regulatory activity globally.
(Photo: President Donald Trump and Andrew Puzder, right. AP/Carolyn Kaster, File)
5. New Labor chief
Andrew Puzder, CEO of CKE Holdings (the parent company of Carl’s Jr. and Hardee’s), has been nominated to head the U.S. Department of Labor (DOL). If confirmed, Puzder could impact the frequency and severity of employment, wage and hour, and fiduciary liability litigation.
Puzder has been an outspoken critic on several federal employment initiatives, including the regulation expanding overtime protection, according to public reports. The regulation was supposed to go into effect Dec. 1, 2016, but was blocked on a nationwide basis by a Texas federal district judge just days before its effective date. As many companies had already planned to take action in preparation for its implementation, this wait-and-see position creates a significant amount of uncertainty.