Approaching the end of the year, listed companies once again set off a wave of small upsurge in the purchase of D&O insurance (i.e., "D&O and senior management liability insurance"). According to the statistics of the reporter of the Economic Information Daily, since December, 21 A-share listed companies have chosen to purchase D&O insuranceSince the beginning of this year, 232 listed companies have announced the purchase or renewal of liability insurance for directors, supervisors and senior executives.
Industry experts said that D&O insurance can relieve the worries of directors, supervisors and senior executives of insured companies in performing their duties, help improve the company's reputation and compensation ability, and is an effective tool to promote modern corporate governance. At the same time, D&O insurance is not a panacea, and it is necessary to pay attention to the exceptions.
At the end of the year, there was a small upsurge of "additional purchase" of "D&O insurance".
On December 20, Jinkai Biotech announced that the company intends to purchase liability insurance for directors, supervisors and senior managers. According to the purchase plan, the insured are the directors, supervisors and senior managers of the company, and the liability limit is not more than RMB 50 million per year, and the insurance cost is not more than RMB 300,000 per year (subject to the insurance contract). The duration of the policy is 12 months, and it can be renewed or re-insured annually thereafter.
In addition to Jinkai Biotechnology, since December, 21 listed companies, including Fushi Holdings, China National Heavy Duty Truck, Zhongke Flying Testing, Hengwei Technology, Haiyuan Composites, Xingyuan Materials, and Batian Shares, have announced that they intend to purchase liability insurance for all directors, supervisors and senior executives.
From the perspective of the reasons for insurance, most companies said that the purchase of liability insurance for all directors, supervisors and senior officers of the company is based on the consideration of protecting the interests of investors, reducing the company's operational risks, and promoting the company's management to fully exercise their rights and perform their duties. At the same time, the company believes that D&O insurance can provide protection for the liability of the company's directors, supervisors and senior managers in the process of performing their duties in accordance with the law, which is conducive to improving the level of corporate governance, promoting the performance of duties by responsible personnel, and improving the company's risk management system.
According to the reporter's statistics, as of December 25, 232 listed companies have announced the purchase or renewal of liability insurance for directors, supervisors and senior executives during the year. From the perspective of the company's industry, the manufacturing enterprises account for a relatively large proportion of the above 232 listed companies, of which 27 belong to the electronics industry, 25 are in the pharmaceutical and biological industry, and 23 are in the machinery and equipment industry. In addition, more than 10 companies in the basic chemical, automobile, environmental protection, power equipment, and computer industries also announced the purchase or renewal of D&O insurance during the year.
From the perspective of company size, more and more midstream companies have also joined the army of D&O insurance purchases, and the median total market value of the above 232 listed companies is 55$8.9 billion. Among them, there are also listed companies with a market value of 100 billion. For example, Midea Group, Kingsoft Office, and Sanhua Intelligent Control, three listed companies with a total market value of more than 100 billion yuan, announced the purchase of D&O insurance this year.
From the perspective of liability limits, the current D&O insurance policy limits of A-share listed companies are usually in the range of RMB 50 million to RMB 100 million. At the same time, there are also some "huge policies" in D&O insurance, such as Midea Group, which intends to purchase liability insurance for the company and all directors, supervisors and senior managers (including those in holding companies) in 2023-2025, with a compensation limit of up to US$80 million.
There is a reason behind the additional purchase of "D&O insurance".
Pan Yue Cartography.
Data**: Straight flush (as of December 25).
Wei Li, professor of the School of Finance and Finance of Chinese University, director of the Department of Insurance and director of the China Insurance Research Institute, said that professional liability insurance refers to the insurance that takes the liability of various professional and technical personnel to the related parties of professional and technical service contracts or others caused by them engaged in vocational and technical work. Professional liability insurance is a special field of civil liability system, which is also known as "professional compensation insurance" or "professional negligence liability insurance" in foreign countries because it is closely related to specific occupations and their technical work.
According to the Report on the D&O Insurance Market of Listed Companies in China (2023) released by the insurance team of Shanghai City Development Law Firm, before 2019, only 37 listed companies disclosed the purchase of D&O insuranceIn 2019, 39 listed companies disclosed the purchase of D&O insurance;In 2020, that number rose rapidly to 119;In 2021 and 2022, there will be 248 and 337 respectively. From 2020 to 2022, the number of companies disclosing the purchase of D&O insurance increased by % and 36%, respectively.
In recent years, there has been a significant increase in the number of cases in which listed companies have been sued for civil liability to investors for fraud, but at present, there are still few cases in which listed companies recover compensation from directors, supervisors and senior executives after performing their liability for compensation. Nie Weidong, a lawyer at Sichuan Huashen Law Firm, said that the "Opinions on Strictly Cracking Down on Illegal Activities in Accordance with the Law" issued by the General Office of the Communist Party of China and the General Office of the Communist Party of China clearly stated that it is necessary to adhere to the "zero tolerance" requirement and increase the accountability of the controlling shareholders, actual controllers, directors, supervisors and senior responsible persons of the issuer. "The high growth of D&O insurance is due to the implementation of the new ** Law, especially the Chinese-style ** class action system established by the new ** Law, which has greatly increased the litigation risk of A-share listed companies and their directors, supervisors and senior executives. Nie Weidong analyzed.
D&O insurance is a special kind of professional liability insurance, which mainly protects the company's directors, supervisors and senior managers who need to bear the liability for losses caused to the company's related parties or others due to the legal liabilities caused by negligence, mistakes or negligence when exercising their management duties, and generally includes legal fees. D&O insurance helps to relieve the worries of directors, supervisors and senior management by transferring the risk of mistakes in the performance of duties by directors, supervisors and senior management, and is conducive to the company's retention of talents, while D&O insurance helps to improve the company's reputation and compensation ability, so it is favored by the company. Wei Li said.
Experts recommend the rational use of "D&O insurance".
It is worth noting that some listed companies have chosen to purchase D&O insurance "urgently" after being fined one after another. On December 13, ST Jiaoang disclosed that it intends to purchase liability insurance for the company and all directors, supervisors and senior managers, with a compensation limit of no more than RMB 50 million (subject to the final signed insurance contract).
The reporter noted that before this, ST Jiaoang had received regulatory penalties and exchange warnings many times. Just a month before the decision to purchase D&O insurance, on November 7, a number of directors, supervisors and senior executives, including ST Jiaoang and the then chairman, were given warnings and fines totaling more than one million yuan by the CSRC for violating the relevant provisions on information disclosure in the ** LawOn July 19, due to the company's failure to disclose annual reports and quarterly reports within the statutory time limit, the company and a number of directors, supervisors and senior executives were publicly reprimanded and warned by the Shanghai Stock Exchange.
Legal professionals caution that D&O insurance is not a panacea and it is important to pay attention to the exclusions. "D&O insurance is not a panacea, and insurance companies are generally not responsible for compensation for intentional acts and fraud. "Common exclusions include fraud and willful non-complianceIllegal remuneration or personal gain;Property damage and personal injury;Legal proceedings that have occurred at the beginning of the policy, etc. ”
According to the Report on the D&O Insurance Market of Listed Companies in China (2023), the most important reason for the D&O insurance claims that have occurred is related to the misrepresentation of listed companies, and other reasons may include employment misconduct and shareholder derivative lawsuits.
Wei Li believes that any liability insurance can lead to moral hazard, and D&O insurance is no exception, but this will not be the main problem. "Judging from the practice of D&O insurance in Europe and the United States for more than 100 years, its positive effect on corporate governance is still obvious, and the positive impact far outweighs the negative, and it is still an effective tool to promote modern corporate governance. D&O insurance can compensate part of the liability, but it cannot transfer the liability for violations and crimes, so it should be used reasonably. Wei Li said.