D&O claims trends: What P&C pros are reporting

As capacity for writing D&O business in Canada increases, what D&O claims trends are on the radar of Canadian P&C insurance professionals?

Without doubt, COVID-19-mandated business shutdowns drove down loss ratios in 2020-22. For example, the 52.4% loss ratio recorded for the first three quarters of 2022 was “the industry’s best start to an underwriting year since 1975,” as the Canadian Property and Casualty Insurance Compensation Corporation (PACICC) reported in 2022. “It beat the previous ‘best’ reported in 2021 [2021 Q3: 53.9%].”

And, in the aftermath of COVID-19, claims are predictably trending up. But sources say the anticipated rise of claims in D&O lines has not been significant.

“Unlike what we were seeing in the U.S. last year for securities class actions against publicly traded companies, where we saw an increase back to our COVID levels, in Canada [it] has been trending down,” says Ruth Kochenderfer, managing director at Marsh in Washington, D.C. “Only seven filed [in Canada] in 2023.”

And fewer of those were related to stock values as expected, she adds. There were a couple in the mining or energy industries, “but really not [many in] one particular industry. It was kind of a bit spread out among particular industries when it came to those filings.”

Katherine Gauthier is vice president of E&O, D&O, and crime at Intact Specialty Solutions Canada. She reports claims trends are generally consistent with what you would find in D&O insurance, with a gradual increase in some D&O claims related to the opening of the economy after the pandemic.

“Throughout the pandemic, and post-pandemic, because of the [government financial] support systems, we didn’t see as many bankruptcies as we may had expected, nor did we see as many employment practices claims when it came to layoffs or harassment claims,” says Gauthier.

“However, as we move past that, we are beginning to see — not necessarily a significant uptick in frequency when it comes to Employment Practices Liability-type claims — but we are seeing claims with respect to wrongful dismissal or harassment, and we’re starting to see that frequency trend up, as we would expect.”

Global concerns

The rise of geopolitical tensions is on underwriters’ radar as well. This is particularly true of Canadian parent companies that have offices in the United States or internationally.

In the U.S., the upcoming election is pitting two parties that have called for trade barriers against Canadian resources against each other. And Russia’s invasion of Ukraine continues to disrupt supply chains, as do multiple conflicts throughout the Middle East.

The geopolitical landscape “is something we’re mindful of, and how does it impact our customers?” says Daniel Lee, head of financial lines at Zurich Canada.

“It’s just a matter of [asking], ‘Okay, how are [our clients] impacted by some of the geopolitical changes? And with the onset of upcoming elections, major elections throughout the world, how is that impacting, or how could [it] impact, our clients’ business?”

One D&O expert tells CU she’s “become a lot more of a Political Science enthusiast than I ever thought I would.”

Tech troubles

D&O underwriters are becoming tech nerds as well. Many are seeing more tech-related claims launched against company directors, as the worlds of D&O and cyber begin to collide.

Specifically, some boards of nascent or burgeoning artificial intelligence (AI) companies are seeing claims come through for statements made about their AI capabilities. Underwriters are starting to bandy about the term ‘AI-washing.’

“AI washing is similar to the term ‘greenwashing’ that’s tied to the climate, in which companies are allegedly overstating their AI capabilities,” Kochenderfer says. “We’ve seen several of those this year, already filed. It’s almost a traditional risk, if you overstate what your company is doing, as opposed to being a really unique AI-type risk.

“I think some of the companies [targeted in these claims] may be more AI-true. For example, that’s one of their main products, or they’re pivoting to become that.”

But it’s not just AI: underwriters are seeing more tech-related claims against company directors.

“I would say we are talking about technology advances,” says Gauthier. “For example, the use of artificial intelligence or AI, be it in the professional liability space or within the D&O space, [underwriters are] considering how that can disrupt the business, or how the business can use it [for] support.

“How any company uses a new technology can be viewed positively or negatively. And we are looking at the corporation’s governance around that.”

Cyber claims are now reaching the board level, too, adds Gauthier.

“We’re seeing a little bit of a connection to cyber claims, which can evolve into the potential for a D&O claim or a liability claim. Directors and officers have an obligation to prevent cyberattacks, to have strong controls. And of course, that duty puts them at risk of a cyber event resulting in a potential liability or claim against them.”

This article is excerpted from one appearing in the August-September 2024 print edition of Canadian Underwriter. Feature image courtesy of iStock.com/CSA Images