Research

Insurance Marketplace Realities 2019 — Directors and officers liability

November 6, 2018

Rate predictions

  Trend Range
Overall No change or slightly up Flat to +5%
Public company — primary No change or slightly up Flat to +7.5%
Public company — excess No change or slightly up/down –5% to +5%
Private and not-for-profit No change or slightly up Flat to +10%
Side-A/DIC No change or slightly up -5% to Flat
Financial institutions No change or slightly up Flat to +3%

Key takeaway

Overall, expect more disciplined primary directors and officers (D&O) underwriting and pricing, similar to what has developed over the last 12 to 18 months, as insurers monitor claim trends and more carefully deploy capacity.

Many D&O renewals are likely to see pricing flat to up slightly.

  • Competition: Even with recent insurer M&A activity, competition remains ample. However, expect more underwriting discipline, including insurers taking a more conservative approach in the deployment of capacity potentially tempering competitive pressure. Nevertheless, an increasing rate environment could reinvigorate competitive pressure.
  • Support of incumbent carriers versus marketing: 2019 renewals may challenge the more price-sensitive buyers in their support of incumbent insurers. If achieving the most competitive pricing is the primary goal, marketing the placement will certainly be needed. For most buyers, as reflected in our 2018 Management Liability (Directors and Officers) U.S. Survey, insurer quality (financial strength and coverage expertise) and long-term relationships matter, which may mean paying slightly more premium or accepting smaller discounts.
  • Private and not-for-profit companies: Financial health and industry matter. Financially distressed firms or companies in volatile or emerging industries will likely continue to see premium increases, higher retentions and/or coverage restrictions.
  • Excess: The high cost of defending claims is putting lower excess, public company (including IPO) layers more clearly “in the burn layer.” We expect continued upward rate pressure from incumbent, low-excess insurers. (See Support of incumbent carriers versus marketing above.)
  • Side-A/DIC: We are still likely to see competition-driven pricing based on the profitability of the product. For Side-A, even small dollar decreases, when expressed as a percentage of the premium, may seem substantial.

Discipline may mean more active responses to key loss drivers and dynamic, growing risks.

  • Securities class actions (SCA): Public company SCA frequency trends remain at historically high levels. With stock markets at near record levels, severity of losses could worsen due to precipitous stock drops. Also, more merger and acquisition suits surviving the transaction effective date could drive up losses. Result: These loss trends will likely fuel pricing pressure.Cyber, M&A and privacy: As markets adapt to new risk dimensions, such as social media impact (e.g., #MeToo), privacy compliance risks from GDPR and California’s Consumer Privacy Act and other dynamic cybersecurity risks, we may see a wave of wording initiatives looking to expressly delineate whether coverage is afforded. Result: Pressure on certain “silent” coverages, namely cyber. (The term silent cyber is commonly used to loosely describe the elements of cyber coverage that may be found in traditional policy wordings that do not explicitly address cyber perils or loss.)
  • IPOs/ICOs: Already a tough class of D&O to place, these risks will be even harder to place as insurers monitor the impact of the SCOTUS decision in Cyan, Inc. v. Beaver County. However, as the scarcity of capacity for offerings pushes rate and terms, we may find opportunistic carriers willing to step in — for the right price.
  • Coverage: New products and features will continue to be offered. Meaningful new features may come with a price. Areas of focus are likely to include investigation coverage, social media, crisis and reputation protection, #MeToo-related and Side-A DIC enhancements.