The cost of being hammered
It's expensive to be a director of a Chinese firm listed in the US: insurers charge huge sums against investors suing you if things go wrong
Stephen Markscheid holds one of the riskiest jobs in the world - or so say insurers.
The 500 or so Chinese firms listed in the US came under scrutiny over the past two years as a rash of accounting scandals and irregularities sent shares tumbling, sparked investor lawsuits and halted new stock offerings on US exchanges. The US Securities and Exchange Commission has revoked more than 50 Chinese company registrations since early 2011.
"The work that I'm doing now, it's not for the faint of heart," said Markscheid, who travels to China for board meetings from his home near Chicago eight to 10 times a year. "I've been sued quite a few times."
As a result, the cost of insurance to cover directors and officers of Chinese firms against lawsuits has soared, with premiums reaching as high as US$100,000 per US$1 million of coverage in some cases, up from US$10,000 to US$15,000 a few years ago. Now, as Chinese firms start listing in the US again and the pace of lawsuits slows, insurance carriers are still charging higher rates and have imposed stricter policy terms, according to brokers, underwriters and directors.
Buyers of the coverage are "really getting socked", said Brendan Dolan, a senior vice-president at Willis Group's North America division, who has brokered policies for Chinese companies since 2005. Insurers are "being opportunistic, because they know they can".