Covid-19 pandemic - risks for directors and managers

29.12.2020

The year 2021 promises to be - perhaps even more than 2020 - very tricky for Covid19 
 
Business leaders and managers see 2020 as one of the most complicated and troubled years of the modern era. However, 2021, which is now upon us, does not appear to be any easier to manage, with an economic recovery - albeit weak and uncertain - that will definitely not kick in until the second half of the year, and the big question mark behind the logistical and organisational capacity that each country will necessarily have to muster to manage the most massive mass vaccination in history - this is the basic premise behind the notion of economic recovery. As an insurance broker in the medium and large industry sector, the last few weeks have been marked by great difficulties in renewing existing D&O cover (directors and officers insurance, also called directors' or officers' liability insurance), both with Italian and foreign insurers. New risk conditions were imposed, accompanied by a sharp increase in premiums and correlated in many cases with a reduction in guaranteed limits. But what has led to this cautious attitude, if not outright concern on the part of insurers? Certainly, the "warnings" of expected insolvencies are among the biggest concerns of the D&O insurance industry. Indeed, insolvency is one of the main reasons for liability claims being brought against directors, company managers, etc. by insolvency practitioners. According to Euler Hermes, the global insolvency rate could rise as high as 35% by 2021, peaking in the second quarter, as government measures to support companies are gradually phased out and the ban on dismissals is lifted. The future looks even more fragile for those companies operating in markets where class actions for consumers/damaged parties are possible. Due to a lack of diligence in dealing with the Covid 19 epidemic in the companies and the resulting negative operating results, first intentions of class actions have already been announced. It will certainly not be easy to face the inevitable legal disputes that will be fought out by the companies' boards of directors on the one hand and shareholders, customers or employees on the other. Of course, in this context, it cannot be denied that the scenario of increased risk for the coming year and perhaps for next year, both in terms of indemnity and in terms of legal costs for defending claims, has forced insurance companies, but also reinsurers, to review their positions and to substantiate the increased risks with a new and stricter premium calculation. The advice we as brokers have given our clients is, of course, to renew all insurance positions, including those where they have seen significant increases despite our intervention as intermediaries. More than ever, in the coming months, these insurance policies will become an indispensable tool of self-insurance for accountants, administrators, directors and managers of companies, whether large or small, more or less involved in the wave of Covid-19, which we hope will soon erase the name but not the memory.
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