Risks for managers are increasing: D&O insurance is becoming expensive!

Risks for managers are increasing: D&O insurance is becoming expensive!

At a time when the risks for managers are constantly increasing, there is great uncertainty in the management sector. This has prompted Allianz to draw attention to the increasing lawsuit and liability risks for board members and managing directors worldwide. According to a report by Northern Courier Cybercrime as well as increasing regulatory requirements and the uncertain global situation are major factors contributing to this worrying development. Against the backdrop of official sanctions and an accumulation of shareholder lawsuits, Allianz Commercial has published a comprehensive analysis on the subject of manager liability (D&O – Directors and Officers).

The liability of managing directors and board members is evolving rapidly. The high cost structure in manager liability means that some insurers have already given up the business. While the average cost of a legal settlement in D&O cases in the USA has risen by 27% to 56 million US dollars (approx. 48 million euros), German companies are also struggling with rising costs. How GDV reports, the General Association of the German Insurance Industry registered around 2,500 D&O cases in 2023, which corresponds to an increase of 12% compared to the previous year. The average costs per claim amounted to over 115,000 euros - an increase of almost 14%.

The challenges for tech and deep tech companies

The situation is particularly problematic for tech and deep tech companies that are active in areas such as artificial intelligence or renewable energies. These companies are often fast-growing innovators and face enormous pressures, increasing the risk of management errors. Decisions often have to be made under time pressure, and strict legal requirements make the situation even more difficult. Risk Partners highlights that the high expectations of investors put additional pressure on managers even in times of rapid market changes. If mistakes are made, directors could be sued for damages.

In this uncertain situation, D&O insurance becomes essential protection for management. It covers both defense costs and damages claims, protecting executives from personal liability arising from their decisions. The need for such insurance coverage becomes even clearer when one considers that many insurers have reduced their coverage in recent years. The sum insured is usually around 15 million euros, while large corporations can even cover up to 300 million euros.

Looking into the future

The legal dangers for board members and managing directors are multifactorial and extremely serious. In Germany, the most common legal danger arises from supervisory boards being obliged to examine liability claims. This increases the liability risk not only for managers, but also for the companies themselves. Boards of directors and managing directors are faced with a complex landscape of legal challenges and financial risks. This not only requires clever handling of D&O insurance, but also forward-looking and risk-aware corporate management.

D&O insurance therefore has the potential to be a crucial aspect of corporate security - especially in turbulent times when management is under constant pressure and often faces unforeseeable challenges.