Recently, the first instance judgment of Kangmei pharmaceutical case was announced. Five independent directors of Kangmei pharmaceutical were sentenced to bear joint and several liability for civil compensation. The high amount of compensation is the first in the industry. In fact, after the Ruixing coffee incident last year, Dong liability insurance has attracted much attention. In 2020, Ruixing announced that it had purchased directors' liability insurance after financial fraud, so that directors' liability insurance came into public view; Recently, the Kangmei pharmaceutical incident caused the concern of independent directors of many listed companies and resigned one after another. Chinese listed companies began to pay more attention to directors' liability insurance.
What is the development status of Dong liability insurance in China, what opportunities and difficulties are it facing, and where will it go in the future?
Kangmei pharmaceutical is the catalyst for the development of directors' liability insurance
Directors' liability insurance refers to the liability insurance for directors, supervisors and senior managers, which refers to when the insured directors and senior managers are charged and investigated for personal compensation liability due to misconduct or work negligence in the process of participating in the operation and management of the company, Insurance in which the insurance institution compensates for the relevant legal expenses paid by the director and senior management in the process of liability defense and is responsible for compensating their civil liability. Due to the high amount of directors' liability insurance, it is generally jointly underwritten by multiple companies to disperse risks.
Reviewing the development history of Dong liability insurance, it entered the Chinese market in 2002. On January 7, 2002, the CSRC issued the guidelines for the governance of listed companies, which clearly stipulates that listed companies can purchase liability insurance for directors, except for the liabilities caused by Directors' violation of laws, regulations and the articles of Association; On January 15, 2002, the Supreme People's Court issued the notice on the acceptance of civil tort disputes caused by false statements in the securities market, which standardized the definition, acceptance and limitation of action of civil compensation cases of false statements. The civil compensation liability of the directors, supervisors and senior executives of listed companies was clarified, providing legal support for the implementation of directors' liability insurance. On January 23, 2002, Ping An and Qiu Bo insurance group jointly launched the first Dong liability insurance in China, marking the official entry of Dong liability insurance into the Chinese market.
Statistics show that by the end of 2020, there were 14060 independent directors in 4503 enterprises in Shanghai and Shenzhen.
Wang Guojun, a professor at the school of insurance of the University of international business and economics, believes that the Kangmei pharmaceutical incident will be a huge catalyst for the development of Dong liability insurance. Before, the insurance coverage rate of A-share listed companies was not high, but the executives of many companies, especially financial listed companies, have generally recognized the directors' liability insurance, and the insurance coverage rate has increased rapidly.
"If Dong Jiangao's liability for civil damage compensation in practice is caused by Dong Jiangao's malicious fraud, it is an excluded liability, and the insurance company will not compensate. The insurance company does not encourage malicious fraud and crime." Wang Guojun said that Dong Jiangao liability insurance is almost standard among Listed Companies in the capital market of developed countries, because Dong Jiangao liability insurance can encourage Dong Jiangao to innovate boldly. Don't be afraid of hands and feet because of possible civil liability, and dare not do things that are good for the company but may bear economic risks.
the salary of independent directors is not high
Insiders believe that the directors' liability insurance will develop greatly in the future. According to Everbright Securities Company Limited(601788) analyst Wang Yifeng, if China's directors' liability insurance can reach 85% coverage level in 2030, the total income of directors' liability insurance premiums from 2021 to 2030 will be 7.62 billion yuan. "But on the contrary, we must also realize that although Dong liability insurance has begun to receive attention in China, its coverage is very low. Some data show that Dong liability insurance has less than 10% coverage in China."
In fact, the salary of independent directors is not high. According to statistics, each listed company has three independent directors, with an average annual salary of 84155 yuan. According to the financial report of Kangmei pharmaceutical in 2020, the annual salary of independent directors is not high, with an average of about 10000 yuan a month, but they are required to bear hundreds of millions of yuan of debt because of the company's financial fraud.
Some insiders believe that independent directors have a low degree of participation in the company's daily operation, but they should still bear the responsibility as long as they sign. It is suggested that in the claim settlement link, the directors' liability insurance stipulates that some losses shall be borne by the executives themselves in addition to the deductible, which is also conducive to the listed companies to strengthen internal control and standardize the behavior of executives.
During the reporter's investigation, Mr. Zhang, an independent director of a listed company, told reporters that he himself served as a teaching post in Colleges and universities, and also served as a part-time independent director of a listed company. "In fact, our salary level is not as high as the public thinks, but we don't have any practical work at ordinary times. We need to invest less time and energy, so we just have one more post. Nothing happens and there is no big risk. But the Kangmei incident really touched me and will consider resigning this post."
how can insurance companies better reduce risks
The industry believes that the insurance demand for directors' liability insurance will grow rapidly in the future. Wang Wei, assistant general manager of financial risk business department of Huatai Insurance Brokerage, previously wrote that according to statistics, before the judgment of Kangmei pharmaceutical incident, the policyholders of Dong liability insurance prefer to buy the liability limit of 30 million yuan to 80 million yuan, and the corresponding premium cost is 300000 yuan to 800000 yuan. However, after Kangmei pharmaceutical and relevant responsible persons were awarded high compensation, the policyholders' demand for the liability limit of directors' liability insurance increased significantly, and the premium also showed a further upward trend.
With the growth of insurance demand, how can insurance companies better reduce their own risks?
As a third-party supervision, the participation of insurance companies can restrict the risk behavior of insured companies. Insurance companies can set supervision terms to restrict their risk behavior by increasing the cost of management violations. Take the liability insurance clauses for directors, supervisors and senior managers of Ping An Property Insurance as an example, which stipulates that the insured company shall perform the "obligation of truthful disclosure", and timely notify the insurer when the risk increases. The insurer can increase the premium or terminate the contract according to the provisions of the rate table. Among them, Articles 28 to 32 stipulate that the insured company is obliged to inform the insurer in writing within 30 days after meeting the specified conditions after major changes such as merger, reorganization, suspension of business, change of shareholders and securities issuance and trading of the insured company.
Wang Yifeng believes that, on the one hand, insurance companies can reduce information asymmetry by requiring the insured company to perform the obligation of truthful disclosure, and identify whether the insured company has the risk of violation from the disclosed information; On the other hand, the insurance company can set up a reward and punishment mechanism. If the insured company has the possibility of increased risk, the insurance company has the right to increase the premium or directly terminate the contract, increase the financial cost of the company's violations and curb its risk behavior.
"Of course, with the fermentation of Kangmei pharmaceutical case, the rate of directors' liability insurance of A-share listed companies is expected to rise." An insider told reporters.
(Xinhua Finance)
