In recent years, director's liability insurance has gradually become a high-frequency term in the insurance and capital markets. According to relevant information, since the beginning of this year, about a hundred A-share listed companies have announced their intention to purchase this type of insurance for their directors, supervisors, and senior management personnel. A certain express logistics company has an annual insurance coverage of about 750 million yuan, becoming the company with the highest amount of director's liability insurance coverage this year.
What risk protection can director's liability insurance provide? Why is it popular in the market? The reporter conducted an interview.
Diversify the risk of performance errors and ensure the implementation of compensation responsibilities
Director's Liability Insurance is the full name of "Directors', Supervisors', and Senior Management's Liability Insurance". In China, director's liability insurance is not a new type of insurance. In order to strengthen corporate governance and improve the quality of listed companies, in 2002, the China Securities Regulatory Commission and the former State Economic and Trade Commission issued the "Code of Corporate Governance for Listed Companies", which stipulated that "with the approval of the shareholders' meeting, listed companies can purchase liability insurance for their directors." At the end of January of that year, Vanke Enterprise Co., Ltd. signed a policy with Ping An Insurance, becoming the first buyer of director's liability insurance. According to statistics, there are currently hundreds of listed companies in China that have purchased this insurance.
What are the main risk protections provided by director's liability insurance?
When the 'directors, supervisors, and executives' of the insured company cause losses to investors due to negligence during the performance of their duties, and the investors file a claim against the' directors, supervisors, and executives', and the 'directors, supervisors, and executives' should bear civil compensation liability according to the law, the insurance company is responsible for compensation according to the insurance contract. "Zheng Wei, director of the Department of Risk Management and Insurance at Peking University School of Economics, said that this type of insurance provides personal protection for the' directors, supervisors, and executives', including necessary and reasonable expenses they pay to control or reduce losses after an accident occurs.
Director's liability insurance can also provide corresponding protection for the insured listed companies. Director's liability insurance can provide insurance protection such as consulting fees, response fees, legal fees, and civil compensation during the daily law enforcement and investor civil claims stages of supervision, effectively reducing the financial losses borne by relevant parties themselves and enhancing the profit stability of listed companies, "said Shen Lexing, head of the high-end product department of Ping An Property Insurance Co., Ltd. headquarters.
Dong's liability insurance ensures the implementation and implementation of compensation, and also protects the rights and interests of investors, avoiding the inability of 'Dong, Jian, and Gao' to compensate due to personal economic reasons, which may result in irreparable losses for investors, "said Wang Xiangnan, Deputy Director of the Insurance and Economic Development Research Center of the Chinese Academy of Social Sciences.
Director's liability insurance can also reduce the risk of investors suffering secondary losses. In some cases, the defendant listed company may generate non recurring gains and losses after executing high compensation, affecting the current operating performance, causing a decline in stock price and market value, and causing additional losses to investors. Introducing insurance mechanisms for risk transfer and buffering is beneficial in reducing potential secondary injuries.
Some investors are concerned that companies that purchase director's liability insurance may have higher operational risks?
From the experience of mature insurance and capital markets internationally, this statement is not valid. Most listed companies in these markets will purchase director's liability insurance, which is a normal way for companies to strengthen their risk management level and effectively improve their corporate governance efficiency, "said Wang Xiangnan.
There are some misunderstandings about director's liability insurance in the market. Just because a listed company is insured does not mean it can 'do whatever it wants,' "Zheng Wei said. Director's liability insurance has a series of liability exemption clauses and does not provide risk protection for intentional or fraudulent behavior.
Enhance the risk management efficiency of listed companies and promote the healthy development of the capital market
Experts say that in recent years, the construction of China's capital market system has been continuously improved, and the market has become increasingly mature and rational. In this situation, it is inevitable for the director's liability insurance to "heat up".
With the revision and promulgation of the new Securities Law and the release of a series of normative documents, the protection of the legitimate rights and interests of investors has been placed in a more important position, and the degree of protection has significantly increased. At the same time, the new Securities Law clarifies the representative litigation system, which makes' directors, supervisors, and senior executives' face greater compensation when they improperly perform their duties. This not only prompts listed companies to pay more attention to the standardized performance of 'directors, supervisors, and senior executives', but also stimulates their need to deal with related compensation risks, "said Zheng Wei.
In recent years, the number of shareholder lawsuits has increased, and some typical cases have received widespread market attention. In November 2021, the Guangzhou Intermediate People's Court made a first instance judgment on the dispute over false statement liability between investors and Kangmei Pharmaceutical. The defendant Kangmei Pharmaceutical compensated investors with a loss of 2.459 billion yuan, and the company's five independent directors were jointly liable for compensation. The role of director's liability insurance has once again received market attention.
Chen Jie, Director of the Business Law Research Office at the Law Research Institute of the Chinese Academy of Social Sciences, believes that purchasing director's liability insurance is beneficial for listed companies to attract and retain outstanding talents, allowing directors and senior staff to make scientific decisions, innovate and progress under the premise of legal compliance, and thereby improve the quality and efficiency of company operations.
Director's liability insurance also helps to strengthen the external supervision of listed companies. Insurance companies regulate the behavior of companies and directors through contract terms, and urge listed companies to operate in compliance. This is equivalent to moving the risk management checkpoint forward, "said Zheng Wei. On the one hand, insurance companies help insured companies control and reduce losses by sending professional personnel to participate in risk management; At the same time, it can also leverage the effect of insurance premium rates, that is, the higher the operational risk, the more "expensive" the premium, promote the standardized management of insured enterprises and the full performance of "directors, supervisors, and senior" personnel, and enhance the effectiveness of collaborative governance.
The Opinions on the Reform of the Independent Director System of Listed Companies recently released by the General Office of the State Council propose to encourage listed companies to purchase director liability insurance for independent directors, support insurance companies to carry out relevant liability insurance business that meets the needs of listed companies, and reduce the risks of independent directors performing their duties normally. Industry insiders believe that this sends a positive signal for the better development of director's liability insurance, and will also be conducive to better playing the role of independent directors.
A healthy capital market requires high-quality listed companies and high-quality corporate governance. As an important part of the governance structure of listed companies, the independent director system should play a more active role in promoting the standardized operation of companies, protecting the legitimate rights and interests of small and medium-sized investors, and promoting the healthy and stable development of the capital market. In practice, risks caused by unequal rights and responsibilities of independent directors, insufficient supervision methods, and inadequate performance guarantees are expected to be resolved through director liability insurance, which can relieve the worries of independent directors and better play the positive role of the independent director system.
Industry insiders have stated that in addition to director's liability insurance, related insurance types such as prospectus liability insurance and securities intermediary professional liability insurance are also expected to usher in development opportunities. By building a more comprehensive insurance service system, they can better support the long-term healthy development of China's capital market.
Promote the formation of a more comprehensive director's liability insurance business system, providing safer and more reliable risk protection
In recent years, although the popularity of director's liability insurance has increased and the market prospects are promising, overall, the number of listed companies participating in insurance coverage is still relatively limited. Experts believe that to promote the better development of director's liability insurance, continuous efforts should be made in product standardization, localization, and other aspects. At the same time, supporting systems should be continuously improved to increase the coverage of director's liability insurance and weave a solid protection network.
We should accelerate the standardization of the terms of director's liability insurance products, "said Zheng Wei. Due to the high professionalism and complexity of director's liability insurance, it has to some extent raised the difficulty of understanding and transaction costs. Promoting standardization of terms, such as developing exemplary clauses for the director's liability insurance industry, will help reduce transaction costs and enhance the company's willingness to purchase insurance.
How to better integrate China's laws, regulatory requirements, and market characteristics to improve the design of director's liability insurance products is a common issue faced by the insurance industry, legal community, and related enterprises in China. "Chen Jie said, for example, to scientifically define the coverage and liability scope in director's liability insurance contracts, to identify" intentional behavior "and to limit" losses ", further clarification should be made based on actual situations.
In addition, the historical data accumulated by the director's liability insurance business is relatively limited, and insurance companies still face certain difficulties in grasping actuarial models and rates, such as large-scale underwriting and uncertainty in their own operational risks.
In this regard, the operational risks of director's liability insurance can be diversified through reinsurance and other means, promoting the formation of a more complete director's liability insurance business system, and providing safer and more reliable risk protection for the demand side through more robust supply side risk management, "said Zheng Wei.
Product rates are also a focus of market attention. Wang Xiangnan believes that the director's liability insurance business can adopt differentiated product design and rates based on factors such as company rules and regulations, internal control processes, and personal situations of "directors, supervisors, and senior" personnel. Clear and explicit terms and rate calculation methods should be provided to policyholders when underwriting.
Based on the company's risk situation, adjusting the corresponding rate can better leverage the rate and motivate listed companies to actively carry out corresponding risk management work, "said Zheng Wei.
Industry insiders suggest that to promote the high-quality development of director's liability insurance, it is also necessary to enhance the risk awareness of market operators, correctly understand the functions of director's liability insurance products, fully understand the differences in terms and protection of different products, avoid a simple "price only" approach, and create a better environment for the high-quality development and operation of director's liability insurance.
These enterprise related insurances are of great use (further reading)
In addition to director's liability insurance, there are mainly the following types of insurance products that can provide risk protection for the daily operation of enterprises:
● Corporate property insurance. The insurance company shall compensate for the losses of enterprise buildings, machinery and equipment, tools and instruments, transportation vehicles, precious metals, artworks and other assets caused by natural disasters or accidents according to the contract.
Employer's Liability Insurance. During the employment period, if an employee hired by a company is injured or dies due to an accident or occupational disease, the insurance company shall bear the relevant medical expenses, economic compensation liability, litigation costs, etc. as stipulated in the contract.
● Safety production liability insurance. Insurance companies compensate insured enterprises for personnel injuries and related economic losses caused by production safety accidents, and provide production safety accident prevention services to policyholders. This insurance can also compensate for personal injury and property damage to non employees.
Environmental pollution liability insurance. The insurance company shall bear the compensation liability for the damage caused to third parties by pollution accidents that occur in enterprises in accordance with the law. Insurance companies can use premium rate leverage to encourage enterprises to strengthen environmental risk management, enhance environmental pollution prevention levels, and raise environmental awareness.
● Public liability insurance. Cinemas, exhibition halls, hotels and other units, as insured persons, shall bear the economic compensation liability for personal injury or property damage caused by unintentional acts or activities, which shall be borne by the insurance company in accordance with the contract.
(Chai Jin)
