Marsh to vary director and officer insurance terms based on ESG performance

INSURANCE broker Marsh will offer preferential terms and conditions in director and officer (D&O) insurance policies in Asia based on the strength of their companies’ environmental, social and governance (ESG) risk frameworks, the firm announced on Tuesday (Apr 4).

D&O policies provide liability coverage for company directors and officers should they be found liable for legal misconduct, errors and allegations.

Marsh clients can qualify for the preferential terms by completing Marsh’s proprietary ESG Risk Rating assessment or that of an approved third-party rating methodology. To qualify, their risk scores will have to meet minimum underwriting criteria. In response to queries by The Business Times, Marsh said that the terms and conditions will evolve depending on specific countries and the risk profiles of the businesses. For instance, they could vary depending on whether the companies are publicly listed or privately owned, their geographic footprint, shareholder base, customer base, the nature of their business and industry.

Marshall Lee, head of climate and sustainability strategy at Marsh Asia, said that the firm could not offer the differentiated product earlier because of “the lack of standardised ESG disclosure obligations, and [because] the resulting data gaps made this evaluation challenging in Asia”.

The new product addresses a growing risk as stakeholders are increasingly focused on ESG matters.

Ali Chaudhry, Finpro leader for Asia at Marsh Specialty, said: “ESG is an emerging D&O risk for Asia and many parts of the world. While expectations from the public, shareholders, regulators and political factors are all evolving, it is clear these expectations to businesses are only increasing.”

Sharanjit Chaggar, D&O practice leader at Marsh Specialty Asia, added: “The risk of claims arising from ESG-related issues such as breach of duty, disclosure obligations, and misleading statements is a growing concern for directors and company boards in Asia. Marsh’s collaboration with our panel insurers in Asia is a key step in recognising – and rewarding – the increasingly prominent role that robust ESG risk management plays in evaluating D&O liability risk profiles.”

Kennedys Legal Solutions partner Robson Lee welcomed the move, stating that it “would be consistent with the market regulator’s emphasis to require board members to exercise oversight responsibilities and be accountable for the company’s implementation and execution of ESG policies and practices that are required to be fully disclosed in the company’s annual sustainability report”.

It was also a notable feature in a competitive market.

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“The annual premiums for the range of coverage are fairly competitive in the industry, as D&O insurance is a well-established market practice, particularly for listed companies”, Lee said.