Risk Aversion and Strategic Play: An Investigation into the Directors and Officers Liability Insurance Ecosystem in the Era of the New Company Law

As 2025 draws to a close, a “trump card” in A-share corporate governance is being revealed. The “China Listed Company Directors and Officers Liability Insurance Market Report (2026)” (hereinafter referred to as the “Report”) points out that by the end of 2025, the overall penetration rate of directors, supervisors and senior management liability insurance among A-share listed companies has historically broken through 32%. Over the past year, a total of 643 A-share listed companies disclosed plans to purchase D&O insurance, a year-on-year increase of nearly 20%. The rise in numbers is not an isolated numbers game. Since the official implementation of the new Company Law in July 2024, the capital market’s understanding of executive performance risk is being reshaped. From the panic buying after the Kangmei Pharmaceutical case a few years ago, to nowadays a normalizing configuration driven by legal changes, D&O insurance is taking a dramatic leap from “optional consumption” to “rigid standard.” However, the other side of the coin remains full of paradoxes. On the claims side, compensation amounts for false statements in securities often run into hundreds of millions, with rising risk levels, but on the underwriting side, the market’s average premium rate has dropped all the way to below 0.5%, falling into a mire of low-price competition. How long can this “high-risk, low-price” mismatch last? A hidden game of risk pricing is unfolding between insurance companies and listed companies. **Behind the 30% penetration rate** Extending the timeline, the penetration rate of D&O insurance among A-share listed companies has experienced two significant accelerations. **The first explosion was more like a “stress response” triggered in listed companies after the Kangmei Pharmaceutical case was settled.** In 2021, China’s first “special representative lawsuit” case caused a stir in the industry. In the first-instance judgment, Kangmei Pharmaceutical was ordered to pay 2.459 billion yuan in compensation to investors due to false statements in its annual report. Former chairman and actual controller Ma Xingtian and others could not escape justice; even more alarming to the market was that five independent directors were ruled to bear joint liability, facing compensation amounts of over 100 million yuan. The huge compensation formed a stark contrast to the salaries of independent directors, shattering the psychological defenses of many executives. Guo Meng, a partner at Shanghai Juerui Law Firm, told Xinfeng that under the “special representative lawsuit” mechanism, investors do not need to file suit proactively and are by default included in the litigation (unless they explicitly opt out), which lowers the cost of rights for retail investors. Because the Kangmei case covered 55,000 investors, the claimant base grew dramatically. After the judgment was finalized, many listed companies saw independent director resignation waves, and executives began to reassess risks and responsibilities. Amid the first round of risk education in the market, listed companies proactively sought risk avoidance, and from 2020 to 2022, the A-share D&O insurance penetration rate rapidly rose from 9% to 21%. However, at that time, companies’ insurance purchases mostly stemmed from panic under case-by-case deterrence. In 2023, the D&O market entered a short plateau, with the penetration rate only slightly increasing to 24%. **The second explosion was the “awakening” of listed companies driven by institutional change.** With the revision and official implementation of the new Company Law, A-share D&O insurance penetration rate leapt from 24% to 32% during 2024–2025. Peng Heng, co-founder of XianlvTech, believes the Kangmei case provided the first round of risk awareness, while the new Company Law brought a “second institutional dividend.” He notes that nowadays, the growth in insurance is no longer simply out of fear, but is a rational choice by enterprises to improve governance structures within the framework of new legal regulations. This rational awakening displays a clear gradient among different ownership types. According to the Report, state-owned enterprises have the strongest willingness to purchase insurance, with a penetration rate as high as 52%; foreign-invested enterprises are next at 41%; and private enterprises are only at 33%. These data also reveal the path of compliance pressure transmission: State-owned enterprises typically have more complete decision-making processes and compliance requirements, so D&O insurance is more likely to become part of their standard procurement list for transferring performance risks. By contrast, foreign-invested enterprises, affected by mature overseas insurance practices of their parent companies, have naturally higher awareness. For private enterprises, despite facing higher actual business risks, their insurance rate still has significant room for improvement. At the micro-level, D&O insurance is also becoming an “invisible threshold” for listed companies recruiting independent directors. As legal responsibilities tighten and independent directors’ sensitivity to performance risks rises, companies lacking D&O insurance face greater difficulties recruiting high-quality independent directors, and may even need to pay higher salaries as “risk premiums.” Industry consensus is that D&O insurance has gradually shifted from dispensable “employee benefits” to a necessary prerequisite for attracting and retaining key management talent. **Increasing risk** The underlying logic of the “rigid demand” for D&O insurance stems from profound changes in the legal environment. **The implementation of Article 191 in the new Company Law is seen as a key turning point that changes the scope of director liability.** This clause clearly stipulates: If directors, supervisors or senior executives cause harm to others in performing their duties, the company shall bear compensation liability; if they act intentionally or with gross negligence, they must also bear compensation liability. Guo Meng points out that Article 191 expressly expands director liability to third parties outside the company (such as creditors). “It creates a legal path for external creditors to directly pursue personal liability against executives, avoiding the previous hassle of having to first sue the company and then have the company recover the losses—increasing comprehensive protection for creditors.” Guo further notes, “Executives can no longer always use the company as a ‘shield.’ If they are grossly negligent in their duties, directors’ personal and family assets will face direct exposure to claims, becoming part of the liability property.” **The “presumed fault” principle in securities regulation also adds litigation pressure on executives.** According to the Securities Law, in security false statement disputes, regulators implement burden-shifting—signed executives are presumed to be at fault unless they can provide full evidence that they have been “diligent and responsible.” “This special rule is adopted to protect investor rights, based on the limited ability of minority investors to present evidence in securities disputes,” Guo Meng stresses. “Under this liability principle, actively responding and providing evidence is the only way for executives to be exempted. Passive defense will lead directly to losing lawsuits.” Given this legal reality, the “defense costs” included in D&O insurance provide executives with the resources to hire professional lawyers and defend themselves. In addition, pressure from investor lawsuits is increasing. The Report notes that the total amount involved in investor litigation reached over 10 billion yuan in 2025. Among these, the Jintongling case became another example, after Kangmei Pharmaceutical and Zeda Yisheng, to produce a substantive verdict with application of the special representative litigation mechanism. At the end of 2025, Nanjing Intermediate Court ruled that Jintongling compensate investors a total of 774 million yuan; previously, Jintongling announced plans in 2021 to buy D&O insurance with a compensation limit of 100 million yuan. If the policy was in effect during the incident period, it would serve as a critical touchstone to test the strength of D&O insurance protection. According to incomplete statistics, from Q1 2022 to Q3 2025, total market D&O claims already exceeded 850 million yuan; a single quarter in Q4 2023 saw payouts as high as 71.1 million yuan from a particular foreign insurer. While external claims increase, many companies also face increasing internal recourse risks. Wang Min, senior advisor at Shanghai Jianwei Law Firm, points out that if a company sues its own executives for liability under the law, this usually constitutes a valid “claim” under D&O policy terms. Wang explains that D&O insurance protection is not limited to Side C (covering company liability arising from securities-related misconduct), but also includes Side A (offering personal coverage for claims on directors, supervisors and senior executives for misconduct), Side B (compensating the company when it indemnifies directors, supervisors, and executives under law), and sometimes Side D (employment-related liability for both company and individual). This reveals that with D&O insurance, risk-bearing logic for listed companies can fundamentally shift—from traditionally using the company as the “bottom line” for executives, fully migrating toward having insurance be the “bottom line.” **Reverse premium rates** Against a backdrop of sharply expanding risk exposure, the A-share D&O insurance premium market is showing a counterintuitive downward trend. This forms the market’s current paradox—**rising risk, plunging premiums.** Since 2023, the simple average premium rate of A-share D&O insurance began to fall sharply. As of Q4 2025, the average rate is under 0.5%, with some projects priced even lower. This is mainly driven by an increase in insurers, intensified market competition, and lagged disclosure of claims data. Securities litigation cycles are lengthy—investigations to final judgment often take years; current claim data do not fully reflect high volumes of new cases in recent years, masking true risk costs through a time lag. Coupled with overheated supply-side underwriting capability, the market is stuck in a price war. Low prices are not universal—**the D&O insurance market is still undergoing dramatic structural differentiation.** Wang Min notes that although there are no obvious multiples in public data, pricing is highly personalized: insurers consider governance, financial condition, litigation history, industry risk and other factors. Peng Heng states that the current premium rate differences already impact “insurability” itself. Well-governed state-owned companies are prime assets for insurers—premium rates under 0.5%, classic buyer’s market. ST segment or privately-held companies with regulatory issues face strict underwriting, with rates often soaring to 2–3%, or even direct coverage denial. In terms of coverage selection, A-share listed companies mostly choose coverage ranges of 40–60 million yuan, with 50 and 100 million as the two most common specific limits. Yet facing compensation awards like Jintongling’s 774 million or Kangmei’s 2.459 billion, current coverages seem like “a drop in the bucket.” Wang Min reminds that once in complex litigation, especially representative lawsuits with large numbers of investor claims, the civil verdict amount can be very high—A-share listed companies should consider policies of not less than 100 million yuan. Xinfeng notes **leading companies have already started adjusting their coverage limits.** For example, SF Holdings in 2025 configured a policy limit as high as 750 million yuan, setting an A-share record—showing industry leaders have a clearer understanding of extreme risk exposure. In the shadowy corners of the market, D&O insurance purchases by delisting companies are also becoming a unique game. The Report states that with delistings becoming normalized, 27 companies that delisted in 2025 for financial fraud or information disclosure violations rushed to buy D&O insurance before leaving the market. For example, ST Oriental, delisted for inflating revenues, took out a 100 million yuan policy just before delisting. Additionally, for claims after delisting, listed companies need to arrange “extended reporting period” clauses to cover post-delisting risks. In the new rule-of-law environment, D&O insurance has become a game about the bottom line of corporate governance and the fate of individual executives. Looking to the future, the Report predicts that A-share D&O insurance premiums are bound to rise; as judicial practice of the new Company Law deepens and more claims cases come to light, the value of D&O insurance will inevitably return. For A-share listed companies, how to use this financial tool to build an effective risk barrier will be a compulsory lesson to face in the compliance era. **Risk Warning and Disclaimer** The market has risks, investment needs caution. This article does not constitute personal investment advice and does not consider the special investment objectives, financial status, or needs of individual users. Users should consider whether any opinion, viewpoint, or conclusion in this article suits their particular circumstances. Investment based on this article is at your own risk.