Some news from Marsh recently shows how Directors liability cover might well be linked to ESG and climate change standards in the future. The pricing of corporate risk can hinge on many factors of course, but compliance with the establishment narrative of Net Zero, climate change, sustainablity, low carbon etc may well become necessary to obtain the best value cover one day. Here’s the word;
Marsh, the world’s leading insurance broker and risk advisor, has announced several enhancements to directors and officers liability (D&O) insurance offerings that could enable more clients to benefit from superior environmental, social, and governance (ESG) frameworks.
The move signals a greater willingness among D&O underwriters to recognize organizations with strong ESG risk management as better risks. ESG has consequences for a number of insurance lines, including D&O insurance, which is designed to respond to shareholder, derivative, and event-driven litigation, as well as regulatory actions.
Among the policy improvements, Marsh has introduced new “Side D” entity coverage for regulatory investigation costs relating to climate-related financial disclosures within its London carrier-backed Marsh Delta D&O facility. Clients not publicly traded in the US that score highly using established ESG risk methodologies, including Marsh’s ESG Risk Rating tool, are now eligible for the coverage, which is typically only available to entities after a securities lawsuit has been filed.
BETTER T&CS THRU GREENER ESGs
“Interest in our D&O ESG initiatives has been incredible,” said Paul Denny, Global Financial and Professional Liability (FINPRO) Practice Leader, Marsh Specialty. “More insurers see the connection between good ESG risk management and fewer or less severe D&O losses and are willing to recognize those with superior frameworks with better coverage. This is great news for our clients, many of which have made building a strong ESG framework a priority for their organizations.”
In addition, the London market arms of D&O insurers American International Group, Berkshire Hathaway Specialty Insurance, Sompo International, Starr Insurance Companies, The Hartford, and Zurich have agreed to participate in Marsh’s ESG D&O initiative, launched last October. Under the initiative, US-based or US-listed clients that engage with select international law firms to review, bolster, and/or validate their ESG frameworks, will be considered for preferred D&O policy terms and conditions on ESG-related exposures by participating insurers, subject to underwriting.
Marsh also has enhanced its Lloyd’s of London-backed Marsh Alpha D&O facility, which provides protection for individual directors and officers not indemnified by the corporation, known as “Side A” difference in conditions (DIC) coverage. Clients globally that score highly using established ESG risk methodologies may now be eligible for an extra reinstatement of policy limits.
And, insurer Everest Bermuda has agreed to offer policy enhancements on Side A / DIC coverage for Marsh clients globally with superior ESG frameworks. Enhancements may include explicit coverage for chief sustainability officers, increased limit for independent board directors, and coverage for related fines and penalties.