Financial Institutions Risk Bulleting from AJG

An update from Gallagher, our global risk management and insurance partner.

The ‘Pandora Papers’: another massive, high profile data leak

The financial transactions of various world leaders has recently been leaked to certain news organisations, in what is being called the ‘Pandora Papers’. The leak comprises of data from 14 offshore service providers based in Panama, the Seychelles, Hong Kong, the British Virgin Islands, Belize, Cyprus, Switzerland and the UAE. Reports suggest this episode includes more data than the Panama Papers, which were leaked in 2016 from law firm Mossack Fonseca. Details include: the purchase by King Abdullah of Jordan of some USD100m of property in London, Washington and Malibu; and Tony and Cherie Blair obtaining a GBP6.5m office in Marylebone in 2017 by buying a British Virgin Islands company owned by Zayed bin Rashid Al-Zayani, a Bahraini minister (reportedly saving them GBP312,000 in property taxes).

Data breaches have increased significantly in size and frequency in recent years. In parallel, Cyber insurance has come from relative obscurity fifteen years ago to be the fastest growing class of insurance in the London market. One of the main elements of Cyber insurance is responding to data breaches. Coverage includes defending claims brought by parties affected by a data breach, paying for legal costs incurred in responding to regulatory investigations into breaches, providing support in notifying affected parties and the costs of forensics in order to establish the cause of a breach. The coverage will respond whether the breach has been caused by a disaffected employee leaking data, an error by the insured company or an external hack. If you would like to discuss insurance for data breaches, please contact us.
Source: The Financial Times, 5 October 2021

Greenwashing: a major source of claims for asset managers?

Investigations by regulators in Germany and US have begun into German asset manager DWS in respect of its environmental, social and governance investing. It has been reported that the investigations were triggered by
allegations made by DWS’s former global head of sustainability that it made misleading statements in its 2020 annual report, where it claimed more than half of its USD900bn in assets were invested using ESG criteria.
The investigations have bought so called greenwashing — unjustified claims about environmental practices — into sharp focus for the asset management industry. Regulatory scrutiny of alleged greenwashing has not been confined to the USA and Germany. In July, the UK Financial Conduct Authority wrote to asset managers to highlight concerns about
applications to launch new funds with an ESG or sustainability focus,
warning that these “often contain claims that do not bear scrutiny”.

Professional Indemnity insurance could respond to non-routine regulatory investigation into the alleged greenwashing of investments. However, the policy would have to include ‘investigation costs’ — legal costs incurred by an asset manager in responding to a non-routine regulatory investigation into the provision of financial services. In addition, if greenwashing becomes a source of claims from investors, then coverage under Professional Indemnity insurance may be available, depending on the nature of the claims.
Source: The Financial Times, 31 August 2021

ESG emerges as latest risk for D&O insurance

Commentators in the USA say rising pressure on companies to provide guidance about their environmental, social and governance (ESG) credentials threatens to be a new source of claims to impact the D&O insurance market in the USA. The main risk relates to inaccurate, misleading or misstated information around ESG, resulting in shareholder or derivative suits against directors. Although there has yet to be a significant wave of ESG-related litigation, sources said that it was inevitable that suits would begin to be lodged in the coming years, especially as the US courts resume full operation following the coronavirus pandemic. Commentators have highlighted that one reason claims may increase in the US is that the new White House administration is more sympathetic to the concerns of environmental campaigners than the previous one.  Beyond shareholder claims, there is also the threat of regulatory actions concerning ESG (as demonstrated
by the recent investigation of DWS), which are likely to involve directors.

Almost all D&O policies will respond to claims against directors in respect of actual or alleged failures by them in respect of disclosures around ESG. Further, coverage will be available for legal costs incurred in responding to non-routine regulatory investigations into their conduct concerning ESG.
Source: The Insurance Insider, 21 September 2021