More companies boost executive liability coverage under stricter responsibility rules

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Demand for liability insurance for directors and officers (D&O insurance) is surging rapidly as companies move more actively to protect executives from legal risks, insurance industry officials said Thursday.

The trend follows a recent amendment to the Commercial Act, which aims to strengthen minority shareholder protections by expanding directors’ fiduciary duties to include shareholders, a change that increases the likelihood of shareholder derivative suits and damage claims against executives.

The new accountability framework for financial companies is also adding to litigation risks, making D&O insurance more of a necessity than an option.

D&O insurance provides coverage for legal costs and compensation when executives cause losses to shareholders or third parties through errors, negligence or breaches of duty. Companies purchase these policies to ensure executives can operate confidently and make proactive decisions without personal financial exposure.

According to industry officials, premiums from new D&O insurance policies issued by the five major non-life insurers — Samsung Fire & Marine, DB Insurance, Hyundai Marine & Fire, Meritz Fire & Marine and KB Insurance — totaled 61.9 billion won ($42 million) between January and September this year. On an annualized basis, the figure comes to about 82.6 billion won, up 15.7 percent from last year and 21.3 percent from 2023.

Previously, only large corporations and major listed companies tended to purchase D&O insurance, as shareholder derivative litigation was relatively rare. But following the latest Commercial Act amendment, more companies are seeking new policies or higher coverage limits, suggesting additional premium growth in the fourth quarter.

D&O insurance has also become a critical safeguard for financial firms since last year's implementation of the new accountability framework requiring institutions to submit a responsibility map detailing each executive's internal control duties.

The framework was introduced after a series of major financial crimes, including embezzlement, breach of trust and fraud, occurred across the sector in recent years, exposing gaps in the allocation of executive responsibility.

With individual duties now defined more clearly, executives face greater litigation risk when financial incidents occur.

“Without protections against unexpected lawsuits, executives will not be able to fully focus on management decisions,” an official at a financial holding company said.

A non-life insurance industry official added, “If the risk profile for D&O insurance rises and claims become more frequent, premiums could increase.”