D&O market overview
The D&O insurance market is in transition mode after an extended soft market over at least 15 years, while claims against companies and their directors and officers have skyrocketed in value and volume. The market was already showing signs of hardening in response to the heightened risk facing directors and officers, however the arrival of the COVID-19 pandemic jumpstarted reactions among carriers, and in 2020 we saw significant tightening of capacity and rate increases. Looking ahead, several key factors will likely impact the D&O market trajectory.
Rates and Capacity In A Competitive Market
Market conditions were certainly at their most volatile in 2020, as insurers responded to the claims environment and the pandemic. The withdrawal of D&O capacity and carriers exiting the market meant that there was simply not enough capacity to fill demand. From Beazley’s perspective, while we have become more selective in our risk appetite, we have continued to work with our broking partners to come up with coverage solutions by considering every D&O risk on its own merit. Brokers are working hard for their clients to ensure they can get the coverage they need, but are under tremendous pressure from the clients to reduce insurance costs. At the height of the hard market, we saw clients accept higher retentions and reduce overall limit purchased in order to reduce costs. Premiums were high and supply was short, which has created a perfect storm for new capacity to flood into the D&O market. This has led to a much more competitive marketplace and has pushed rates down on the more traditional business.
The Pandemic Impact Is Beginning To Subside
The full impact of the pandemic on the D&O market hasn’t been felt yet. As time passes, the “benefit of the doubt” bestowed on companies and their leaders who struggled during the first waves of the pandemic last year is starting to evaporate. Investors are starting to look for returns on their investments and are likely to become less tolerant to firms that are not delivering the returns they expect. We have seen investors demand stronger ESG positions and improved cyber security, and pressure on the C-Suite to deliver is mounting at a time when supply chain constraints are affecting almost every business in some way. In the past year and a half, investors have paid close attention to how companies were able to adapt and survive the pandemic. But as we move forward their focus is shifting to how firms can recover and thrive in a post-pandemic world, and those expectations to deliver may not be met with same benefit of the doubt.
Our own research into business leaders’ attitudes to risk tells us that many feel they have weathered the pandemic relatively well. However, the severity of the crisis has meant many are not focused on the macro risks that never went away but have been obscured by the immediate threat posed by the pandemic.
Agents & Carriers: An Important Partnership
Amid economic volatility and general uncertainty, clients are looking for ways to manage their insurance costs and this means reviewing their limits, reducing coverage and sometimes shopping around for new solutions from new insurers or brokers. And with additional capacity in the D&O market, we are starting to see some softer conditions and slowing of rate increases in some areas of the market, especially programs which require significant capacity.
In a changing market such as this, having durable long-term relationships between carriers and agents goes a long way to ensuring businesses can get the coverage they need. Agents are well advised to find an experienced underwriting partner that understands the market dynamics, has experienced the ebb and flow of the D&O market over the years, and can bring their experience to bear when providing coverage that fits the particular needs of the client.
About the author:
Jonathon joined Beazley in 2010 and is an Underwriter of Management Liability on the Executive Risk team. In 2020 Jon was promoted to run the South Central team of Beazley's Executive Risk Division and relocated from New York to Dallas. Before coming to Beazley, Jonathan attended the University of Florida, where he earned a BS in International Economics and an MS in Business Economics.