Best’s Commentary: Stock Market Frenzy Will Add to Insurers’ Social Inflation Pressures

AM Best is of the view that insurers providing directors and officers (D&O) insurance coverage for Robinhood, the free trading app facing class-action lawsuits for restricting stock purchases, could face steep defense and containment costs.

Stock market volatility is a major driver of shareholder litigation, especially D&O claims. Disclosures provided by Robinhood will be under intense scrutiny by lawyers following the recent stock market frenzy surrounding GameStop, AMC and other stocks, although court decisions over the lawsuits likely will take a long time to be resolved. Defense and containment costs and social inflation, including increased jury awards due to anti-corporate sentiment and evolving jury demographics, are already creating pressure on D&O and professional liability insurers. This trend is likely to be exacerbated by the increasing backlash following a number of negative headlines.

In its Best's Commentary, “Stock Market Frenzy Will Add to Social Inflation Pressures,” AM Best notes that some D&O insurance provides for government investigations if individual directors are the target of the investigations. If Congress issues requests for documents or subpoenas, these expenses may be covered by the D&O policy. Additionally, according to the commentary, the overlap between D&O policies and cyber policies could also be tested.

To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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