Foreign firms operating in America are facing mounting insurance costs – particularly relating to premiums for directors’ and officers’ insurance (D&O).
This increase in D&O insurance premiums is being driven by more and more lawsuits being filed against non-US firms.
Citing data from insurance brokerage Woodruff Sawyer & Co., The Wall Street Journal reported that, in 2018, there were 217 securities class action suits filed against both foreign and domestic companies listed in the US. This represents a slight increase from the 216 suits filed in 2017. The 217 lawsuits, however, is the highest recorded in 20 years.
A breakdown of the lawsuit numbers also revealed a troubling trend.
For 2018, the number of class action lawsuits filed against foreign companies rose 39% to 47. The report also noted that of the 20% of companies listed on the Nasdaq and NYSE that are headquartered outside of the US, 4.5% of them were sued in 2018.
The financial risk linked to these lawsuits has also increased, the report found.
The dollar amount of settlements for both foreign and domestic companies in 2018 jumped 71% to $2.4 billion from $1.4 billion in 2017. Similarly, the median settlement amount was the highest in the past decade; the finance sector ended up paying out the most at $941.5 million.
Woodruff Sawyer partner and senior vice-president Priya Huskins projected that D&O premiums for foreign companies have increased anywhere between 6% and 30%. She told The Wall Street Journal that the difference in premiums paid by domestic and foreign companies is due to insurers methodically underpricing the risk associated with overseas-based firms.
Even insurers such as Chubb have taken notice of this trend.
“The best way to think of D&O insurance is it’s malpractice insurance for board members and company leadership,” said Chubb North America division president of financial lines Scott Meyer.
Meyer added that investor disputes over the handling of cases such as sexual harassment or a cybersecurity breach have also become increasingly common reasons for lawsuits – many of which are settled out of court.
