THE NUMBER OF Hong Kong-listed companies buying insurance to protect their directors and officers against lawsuits is on the rise as more attention is paid to corporate governance issues. An amendment to a law about two years ago allowing companies to buy insurance on behalf of their directors and officers has also helped push up demand.
AIG Greater China regional financial lines manager Philip Chiu said about 60 per cent of Hong Kong-listed companies bought directors and officers' liability insurance. Compared with the penetration rate in the United States, which is more than 90 per cent, there is still a lot of room to grow.
In China, less than 1 per cent of companies buy directors and officers' liability insurance. An AIG member company in China recently sold its first IPO Insurance policy to a mainland company, seeking a listing in Hong Kong, that included liability cover for directors and officers.
'As a consequence of an increased focus on corporate governance, greater regulatory control of companies, and legislative reform that is beneficial to investors, there is great potential for AIG members to improve penetration into these [Hong Kong and China] markets,' Mr Chiu said.
AIG's directors and officers' liability insurance covers damages, settlements and legal costs in defending claims against insider trading, wrongful termination of employment, or providing incorrect pricing details of a product. The sources of such lawsuits include employees, shareholders, regulators and customers.
'In Asia, the sources of litigation against directors and officers are wide-ranging. All directors and officers involved in the management of any company are personally exposed,' Mr Chiu said.
AIG's insurance applies to publicly listed companies and private and non-profit-making organisations.