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June 22, 2020

3 Insurance Tips to Navigate 2020’s Rising D&O Market

d&o market

The Directors & Officers (D&O) liability insurance market is in a period of transition. Insurance carriers have tightened their underwriting criteria for D&O risks. In 2019, businesses purchasing D&O insurance started seeing not only higher premiums and retentions but reduced capacity as well. In the first quarter, D&O quarterly average premium increases were 8.9%, according to the Council for Insurance Agents and Brokers (CIAB) report. This is the 10th consecutive quarter for D&O rate increases. Continued rate increases in the D&O insurance market over the next 12 to 18 months are expected. For certain segments and larger programs, finding carriers to meet the coverage demand could prove difficult.

There are a number of factors forcing insurance companies to reexamine their approach to D&O insurance. In recent years, insurance companies have found themselves paying increasingly expensive claims at a more frequent rate. D&O claims are often eating through primary layers of coverage and impacting excess layers. Costly security class action lawsuits, mergers and acquisitions (M&A) class suits, and derivative actions (a suit brought by a shareholder or association member) are more common than ever. Finally, there is a longer settlement period when it comes to D&O claims, and some insurance companies are still paying out losses from claims that occurred during the financial crisis.

For 2020, businesses with a poor claims history and organizations with significant exposures are seeing higher premiums and self-insured retentions (the amount specified in a liability insurance policy that must be paid by the insured before the insurance policy will respond to a loss). Additionally, businesses with layered D&O programs will notice that excess premiums are increasing faster than primary ones.

Trends to Watch

  • Environmental, social and governance (ESG) issues – ESG is generally defined as a broad set of environmental, social and corporate governance considerations that may impact an organization’s ability to execute its strategy and create value over the long term. Investors, regulators and the public increasingly expect organizations and their boards to address ESG issues.
  • Cyber liability in the boardroom – More than ever corporate boards are under the microscope when it comes to their role in overseeing cyber risks. Cyber claims often cross over into D&O claims when there are allegations that the directors and officers did not put the proper safeguards or insurance coverage into place before a cyber incident.
  • Claims driven by workplace mismanagement – Following social initiatives like the #MeToo movement, there’s intense pressure for corporations to hold leadership accountable for their actions when responding to allegations of workplace harassment. Over the past few years, there has been an increase in D&O claims alleging that corporate boards failed to control, prevent or stop workplace issues. 

Tips for Insurance Buyers

  • Examine your D&O program structure and limits alongside your insurance broker to ensure they are appropriate and take market conditions and trends into account.
  • Work with insurance brokers, loss control experts and underwriters to gain a better understanding of your D&O exposures and cost drivers.
  • Focus on addressing exposures related to cyber liability, M&A activity and workforce management.

For risk and insurance guidance to help you navigate these D&O trends, please contact a member of our team.

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