Expanding Protection: D&O Insurance in Post-Reform China
China’s sweeping 2023 revision of its Company Law marks a pivotal moment for corporate governance and the directors and officers (D&O) insurance market. As regulatory scrutiny intensifies and legal obligations deepen, corporate leaders face heightened exposure to personal liability – making D&O insurance more essential than ever.
D&O insurance protects directors, supervisors, and senior executives from financial losses arising from claims linked to their professional duties. These may include breaches of fiduciary duty, negligence, or regulatory non-compliance. With a surge in claims across the Asia-Pacific region, particularly in Mainland China, the insurance landscape is rapidly evolving.
The revised PRC Company Law formally endorses D&O insurance, encouraging companies to purchase coverage and mandating disclosure of policy details to shareholders. Coverage now extends beyond listed firms to include non-listed entities and all directors – not just independents.
Other key reforms include:
- Codified fiduciary duties: Directors must uphold loyalty and diligence, avoid conflicts of interest, and act in the company’s best interest.
- Prohibited conduct: New restrictions target related-party transactions, misuse of corporate opportunities, and non-compete violations.
- Expanded liability: Directors may face joint and several liability for corporate losses and third-party damages.
- Dual derivative actions: Shareholders can sue directors of both parent companies and wholly-owned subsidiaries, increasing litigation risk.
For insurers, these changes present both challenges and opportunities. Broader coverage demand, especially from SMEs, calls for refined underwriting and clearer policy terms. Insurers are also positioned to offer governance-linked advisory services – transforming their role from risk carriers to strategic partners in compliance and corporate resilience.
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