Marsh’s Denny: D&O underwriters to intensify ESG focus as new exposures emerge

The rising tide of regulation around climate risk disclosure is creating new exposures for companies which in turn present new opportunities for D&O underwriters to develop products, according to Marsh Specialty’s Paul Denny.

In the latest episode of The Insurer TV’s Close Quarter interview series, Denny said ESG factors such as strong corporate governance had always been at the core of writing D&O risk.

And as regulators increasingly focus their attention on the environment and climate – “the key issue of today” – Denny said opportunities were emerging to develop innovative new products to address these exposures.

“We have new laws and regulations coming into effect around the world that will require companies to disclose their position on climate risk,” he said.

“We’ve already seen climate-related D&O losses with auto manufacturers and emissions scandals, as well as event-driven D&O losses that have negatively impacted the environment.”

This evolving environment prompted Marsh to develop its new “Side D” D&O product, which adds a new element to its coverage that looks to protect against regulatory investigation costs linked to climate-related financial risks.

And as the D&O sector emerges from a “very challenging” three-year hard market period, Denny said there were opportunities to create more new product offerings.

“We are now in an environment where we are getting back on the front foot and can be innovative with new coverages,” he said.

ESG correlation with D&O losses

Denny, who serves as global head in Marsh Specialty’s finpro unit, said the broker had been examining the relationship between ESG risk management and D&O losses.

“There is a clear correlation between clients that have good ESG risk rating scores and the level of D&O losses they incur.

“D&O underwriters have always been focused on ESG type issues – corporate governance is at the core of writing D&O risk,” he continued.

“Investors are now making decisions as to where to invest based on what companies are saying about their positions on environmental issues.”

Denny said ESG was “fundamental to running a company right now”, with multiple stakeholders focused on ESG issues.

These include “employees making decisions about where to work, capital providers making decisions where to invest and customers making decisions where to buy”.

“D&O underwriters are focused on this and that focus will intensify,” he said.

In this 9-minute interview, we cover:

  • Recent key trends across the D&O market
  • The impact of inflation on pricing momentum
  • How carriers are addressing the rise in cyber claims across D&O
  • The D&O outlook