Key Topics Cyber Insurance Policies Leadership & Responsibility Manager Liability D&O Business & Property Liability

New trends and risks in manager liability

Whether it's cybersecurity, supply chains or whistleblower protection: As a result of stricter legal requirements, company managers are increasingly facing liability risks. In order to be sufficiently protected against financial losses, tailored insurance solutions are needed. In this interview, Sandra Dammalacks, Head of Financial Lines at deas, talks about current developments and solutions.

The D&O insurance market (“directors and officers liability insurance”) has been through a rough patch in recent years. What is the current situation?

As early as 2023, we were able to observe that the market had not only stabilized but was also offering room for premium negotiations again. Insurers are showing increased interest in risks, particularly in companies with positive business metrics. However, in sectors such as retail, construction and automotive suppliers, which are not doing so well economically, insurers remain cautious and practice rigorous technical underwriting. Our goal here is to successfully negotiate contracts for companies in difficult business areas and to avoid restrictions on conditions and exclusions.

How are the current economic and geopolitical developments influencing the D&O market?

In the media, we follow the discussions about Germany as a business location on a daily basis. High energy costs, supply bottlenecks, strikes, job cuts and loss of sales are currently shaping the corporate landscape. In addition, investors are cautious due to the geopolitical situation with Russia and the conflicts in the Middle East. For insurance companies, it is important to keep an eye on the operating figures of each company in order to assess whether it could get into difficulties or even become insolvent or restructured. In such cases, there is a fear that the managing directors and board members could be held liable and thus claims for damages could be asserted in the D&O insurance.

What additional liability risks do managers need to be aware of, particularly with regard to new laws or compliance regulations?

In the context of environmental social governance (ESG), issues such as the Supply Chain Due Diligence Act (LkSG) have a permanent influence on the liability situation of company directors. The LkSG, which already exists as an EU directive and has now been transposed into national law, will require companies with over 1,000 employees to check their suppliers' compliance with human rights and environmental obligations from 2024. To avoid sanctions and fines, purchasing needs transparency from its suppliers in the supply chain. This requires a realignment of supply chain management, for which management is responsible. If the organization is not properly organized, recourse against the responsible company leaders cannot be ruled out, which could then lead to a D&O claim.

The Network and Information Security Directive 2 (NIS 2 for short) is also likely to lead to new liability scenarios and recourse against management. The EU directive places considerable demands on the design of corporate cyber security. However, there is still legal uncertainty regarding the question of whether recourse against managing directors for company fines is permissible.

Another obligation concerns the establishment of whistleblower systems, as regulated in the Whistleblower Directive. This affects companies in the private and public sectors with at least 50 employees, who are required to set up an internal reporting system. In the event of violations of this directive, corresponding liability scenarios for the responsible bodies are conceivable.

How can deas, as an insurance broker, counteract the increasingly technical underwriting of insurers – and support its customers?

In order to achieve successful underwriting and a good negotiating position with insurers, it is crucial to deal with the necessary risk issues and requirements at an early stage and to maintain clear and transparent communication with the customer regarding objectives and strategy. This is particularly important for hard-to-insure risks. By using risk dialogs or underwriter calls, we can successfully place even difficult risks in the market in collaboration with the customer. As a “manufacturer” for our customers, that is our aspiration.

Besides D&O insurance, what other financial lines products do you recommend for companies and managers?

In addition to D&O insurance, cyber insurance, fidelity insurance and legal expenses insurance for criminal defense are undoubtedly among the most important forms of coverage for optimizing a company's balance sheet protection. We also specialize in IPO and POSI insurance and are on hand to provide our expertise for planned IPOs and capital measures. For top managers, we also recommend taking out high-quality top manager legal expenses insurance and, if necessary, personal D&O or deductible insurance in accordance with the VorstAG.

Please also read about what junior management needs for insurance! (Link to blog post Junior Management: What protection is needed?)