How to Leverage Today’s D&O Buyers' Market

May 10, 2023

If your Directors and Officers (D&O) Liability Insurance premium saw double-digit increases in the last two years, your next renewal may provide relief. It may even gift an unusual surprise — a premium reduction — after the hard market pivoted to an increasingly competitive environment. With supply now exceeding demand, D&O buyers for public and private companies and private equity firms can leverage today’s market.

Citing a Fitch Ratings report, Insurance Journal notes that D&O pricing declined in 2022 despite increased loss ratios. The report also ranks the top D&O carriers in the U.S. based on 2022 direct premiums: AXA, Chubb, Berkshire Hathaway, AIG, Fairfax Financial, and W.R. Berkley. 

Market Outlook for 2023 

In December 2022, Alera Group released its 2023 Property and Casualty Market Outlook. Here’s what we said about Directors and Officers Liability Insurance:

“After four years of rampant double-digit price increases, improved combined ratios are enticing greater market participation for Directors and Officers insurers.

  • Rates across all industry segments, encompassing the public and private sectors, will average single-digit increases. For well-run and financially sound businesses renewing with the same limits and deductibles, rates are expected to be flat or slightly lower.

  • Availability and capacity will improve. With an improved profit outlook, more than 20 new insurers have entered this space to expand the existing market. While increased competition will relieve pricing pressure and provide increased access to markets, securing desired excess limits may still require stacking layers of liability coverage from multiple insurers, particularly for limits above $5 million. Exceptions to these more favorable conditions are states where the judicial climate is deemed to be more plaintiff-friendly, such as California, New Jersey and New York.

  • Underwriting scrutiny promises to remain intense. Underwriters are committed to retaining the disciplined underwriting requirements and coverage restrictions that helped the return to profitability. Expect longer lead times for quotes due to insurance-company-specific questionnaires added to submissions.

  • “Coverage exclusions can be expected to include cyber liability, employment practices liability, biometric information/privacy, bankruptcy, insolvency, creditors and major shareholders in the private sector.

  • “Difficult-to-place classes include investor groups, life science/pharmaceuticals and real estate.”

Since the Market Outlook’s publication, D&O trends have continued to favor buyers. Competition among carriers for new D&O business has intensified, with an influx of new carriers chasing historically high premiums. In addition, the decline of IPOs and de-SPAC transactions, along with associated expensive D&O insurance rates, have created a significant premium void for these insurers.

This competitive environment is compounded by another year of decreased securities litigation activity for public companies and higher interest rates across the board. Overall, this established a positive environment for buyers to secure favorable modifications to their program — either premium relief, coverage enhancements or a combination thereof.

How to Leverage Today’s D&O Buyers' Market

Now is the time to push for coverage improvements, after the recent hard market limited the capacity of D&O bells and whistles. Here are six tips to reclaim D&O enhancements at your next renewal. 

  1. Start conversations with your incumbent carrier early. An important consideration is carrier continuity in terms of coverage advantages. With the rise in D&O competition, your incumbent carrier will likely negotiate to retain your business and avoid a marketing process in which it risks losing your business entirely. Ask about premium concessions, increased capacity and new enhancements.

  2. Flaunt your financial health. The number one driving force for D&O underwriters is the financial health of the organization. Create a compelling story for your underwriter presentations. Current trends favor more than just best-in-class companies, and the marketplace will always compete for strong, viable risks.

  3. Reduce your policy retention. While there’s still pressure to maintain retentions, a lower policy retention can be a trade-off for premium concessions. The policy retention is the amount the insured organization pays on a covered claim before the policy kicks in, so a lower retention can potentially save you money if you experience a claim. A robust renewal deal is not only about price.

  4. Unbundle Management Liability packages. When capacity shrank during the hard market, many private companies purchased a Management Liability policy that packaged D&O, Employment Practices Liability (EPL), and Fiduciary Liability, with shared limits. Request separate limits for broader protection against losses. If you file claims on multiple lines of coverage, separate aggregate limits ultimately provide a larger pool of money for covered claims. Private companies sustain EPL claims more frequently than D&O claims, and one allegation of discrimination could erode available limits for D&O claims or other coverage parts.

  5. Request defense counsel options. When you file a claim, the insurance carrier may assign panel counsel to respond to covered allegations. Review the panel list and assigned rates during renewal discussions. In many cases, preferred attorneys can be approved, and rates can be modified.

  6. Add Side A limits. Ask for additional Side A limits to protect the organization’s directors and officers. For example, if you have a $5 million primary limit, your insurance broker may be able to negotiate an additional $1M Side A limit, or another “defense only” limit, above the primary for the same premium. A broader D&O policy creates value for the organization and can help attract and retain business leaders.

A knowledgeable, experienced broker with D&O expertise can guide you through the underwriting and negotiation process for policy enhancements.

What Challenged Risks Can Do

Whether you’re a financially distressed company, in a difficult-to-place class of business or have a troublesome claims history, you can still benefit from today’s D&O market. Here are tips to enhance your coverage.

  1. Prepare for judicious underwriting. If your organization has struggled recently and your financials are more currently distressed than they have been historically, craft a compelling story that illustrates your short- and long-term plans. Share your strategies for increased funding or mergers-and-acquisitions activity.

  2. Avoid creditor or bankruptcy exclusions, as carriers may attempt to tack these onto policies for financially distressed companies for whom the future is uncertain. Avoid these extremely problematic exclusions at all costs. With the recent failures of Silicon Valley Bank and First Republic Bank, bankruptcy concerns are heightened from an underwriting perspective.

  3. Explain lessons learned. If your loss history includes D&O claims in the past five years, illustrate the remediation steps that your organization implemented to eliminate exposures and mitigate against future losses. A diligent broker can help you present your business favorably to underwriters.

  4. Work with a knowledgeable broker to represent your interests to insurance carriers, with the goal of maximizing placement for the best coverage forms, policy limits and pricing. If you’ve been non-renewed or advised to expect lower limits at a higher cost, there’s likely another viable insurance carrier ready to step in and replace coverage. Currently, capacity exceeds demand in the marketplace, and carriers are searching for new business.

Risk-Management Cornerstones

Strong financials, an experienced management team and a robust, diverse board are key to D&O risk management. Insurers and underwriters continue to underwrite the organization’s financial viability and management’s ability to withstand the current financial environment, which includes external factors such as inflation, credit availability and ongoing economic uncertainty. 

In a blog post titled “What to Expect from the D&O Market in 2023,” specialty insurer Beazley notes, “D&O insurers have always focused on the G in ESG (Environmental, Social, and Governance). However, added scrutiny by the Securities and Exchange Commission (SEC) and other stakeholders have put more spotlight on the environmental and social aspects of a company’s operations. The SEC is pushing rules that would require more detailed disclosures around climate-related risks and board diversity requirements.” 

As a result, public organizations are facing continued underwriter scrutiny and requirements, including a demonstrated ability to manage ESG concerns effectively.

For a broader look at navigating insurance mar­­­­ket conditions, read Alera Group’s 2023 Property and Casualty Market Outlook. Learn about factors driving the current P&C market, as well as an analysis by industry and lines of coverage. To obtain the report, click on the link below.  


About the Author

Peter J. Bowers

Vice President

Simkiss & Block, an Alera Group Company

Peter Bowers has been helping clients negotiate and place complex insurance programs and risk-management solutions for more than 20 years. He specializes in D&O placements for publicly traded companies, private equity firms and private companies, with tenured expertise in mergers and acquisitions, and experience with numerous public and private transactions.

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