Over 72 China A-share listed companies have announced that they will purchase D&O liability insurance for directors and supervisors this year after the scandal-hit Luckin Coffee claimed $25m in insurance coverage, reported CapitalWatch.com, a financial news outlet.
Xiamen headquartered coffee chain Luckin Coffee announced on 2 April that nearly half the revenue it reported in the last three quarters of last year, or CNY2.2bn ($310m) was fake. The company blamed its COO Liu Jian for the fraud.
Luckin Coffee purchased D&O liability insurance before its IPO on Nasdaq last year. The insured sum is $25m, reported Xinhua News Agency. The coverage is provided by a consortium of more than 10 insurance companies in China including Ping An Property and Casualty. Luckin lodged claims on the policy after a securities class action lawsuit was filed against Luckin Coffee in February in the US.
Nearly 500 listed Chinese companies have purchased D&O liability insurance. Only 40% of these bought insurance coverage for two or more years. There are only six companies with insurance coverage of more than 10 years, according to the Capital Market Research Institute of the Shanghai Stock Exchange.
The D&O liability insurance market in China, which started in 2002, is less developed compared to that of the western economies.
Liang Mao, director of financial insurance and guarantee business department of Zurich Property & Casualty (China), said that, for insurance companies, the risk in D&O liability insurance business is very high.