A Window of Opportunity to Fortify Your D&O Policy

Recent lawsuits focused on corporate directors, most notably Spence v. American Airlines Inc. et al. and Simeone v. Walt Disney Company, underscore the importance of Directors and Officers (D&O) Liability Insurance for anyone who serves on a board.  

Exposure is not limited to Fortune 500 companies. Directors of a four-unit homeowners association, for example, can be sued for inadequate oversight, breach of governing documents and more. D&O safeguards not only organizations but also the personal assets of their directors and officers.   

Now is the perfect opportunity to bolster your D&O Liability Insurance, with both public and private entities enjoying favorable rates, capacity and availability. Moreover, in addition to providing essential protection, a strong D&O program elevates your organization’s marketability to attract and retain quality candidates for director and officer positions.   

Time to act is now 

In recent years, many D&O Liability policyholders encountered significant challenges, including double-digit rate increases, higher retentions, reduced limits and diminished coverage terms. The market underwent a notable shift mid-2022, however, with market conditions shifting in favor of buyers.   

Nevertheless, it’s important to remember the adage “Good things don’t last forever” and emphasize the importance of seizing current opportunities.   

According to a survey conducted by Aon, which polled D&O underwriters about risk issues, 71% believe that public companies’ D&O exposures are on the rise. The survey noted, “Between increased regulatory frameworks, cyber, ESG and macro-economic conditions, it is hard to imagine D&O exposure doing anything but increasing.”   

Similarly, Allianz Commercial predicts a tougher year ahead for D&O Liability, warning that maintaining the current favorable conditions may prove difficult.   

These reports highlight the urgency to act while buyers hold leverage. Your next renewal may represent the last cycle in which carriers actively pursue your business, offering attractive enhancements. Now is the optimal time to reassess and fortify your coverage, following these critical steps:  

• Start your renewal process four to six months in advance, as policy options do not improve over time.  
• Ask your incumbent carrier about potential enhancements, including premium concessions, lower retentions, higher limits, defense counsel options and additional Side A limits.  
• Correct any elements that were rescinded during the hard market for D&O. Negotiating power for better terms extends to all viable risks, not just those considered best-in-class.   

Attracting quality directors and officers 

A robust D&O Liability program not only mitigates exposure but also attracts high-caliber candidates for board positions. When individuals assume positions as directors or officers within organizations, they and their spouses face personal exposure, potentially jeopardizing their homes, bank accounts and future earnings.  

Litigation risk stemming from alleged wrongful acts by employees, vendors, competitors, regulators and investors further compounds such vulnerability. Additionally, emerging concerns such as generative AI, biometrics, and environmental, social and governance (ESG) policies escalate the risk landscape for directors and officers at public, private and nonprofit organizations. 

Among the risks Allianz cites in its Directors and Officers Insurance Insights 2024 report: “Ongoing inflation, refinancing and insolvency pressures, geopolitical issues, and electoral uncertainty.” Comprehensive D&O Liability Insurance is your best defense against these emerging risks. 

Unwrap Management Liability packages 

Many private nonprofit organizations have a wrap or bundled policy that combines D&O Liability with other professional lines of coverage, such as Employment Practices Liability (EPL) and Fiduciary Liability, sharing limits. As a carryover effect of reduced capacity during the hard market, many private companies with stand-alone D&O Liability policies are covered by a wrap or package mandated by their carrier.  

In the current market, it’s best to work with your agent or broker to unwrap those liability packages. 

The main consequence of a wrap is that EPL claims can adversely affect the overall package rating and diminish your D&O Liability options. EPL claims are much more frequent than D&O Liability claims, and one allegation of discrimination could deplete available limits for D&O Liability claims or other coverages. For a broader policy, unbundle the package or request separate aggregate limits, thereby securing a larger pool of money for potential D&O Liability claims.   

What’s ahead for private companies  

Overall, the outlook for public and private companies is positive, as Alera Group reported in our 2024 Property and Casualty Market Outlook. Here’s what we said about private companies:   

• “More carriers are competing for business. Anticipate ample availability and capacity. Directors and Officers Liability is a desirable line of coverage, and insurers will compete for well-financed entities with positive loss experience and in favorable legal jurisdictions. 
• “Pricing will likely decrease. Rates are expected to continue falling but at a lesser percentage than in 2023. Markets are forecasting an average rate decrease of between 1% and 10%. 
• “Risk quality will still be a factor. Underwriters will look closely at the company’s financial strength — especially around liquidity, cybersecurity controls, employer practices, supply chain resilience and regulatory risk exposures. 
• “Coverage will remain challenging for some. Sectors that can be difficult include banking, oil and gas, healthcare, life sciences, higher education, technology, startups with limited capital, cryptocurrency, mid- to late-stage biotech, cannabis, retail, restaurants, sports/entertainment, and IPOs and SPACs. 
• “Not all policies provide identical coverages. It is critical to be aware of exclusions. For example, more insurers are introducing expanded antitrust exclusions to include claims alleging violations of federal antitrust laws to apply to any claims alleging anticompetitive behavior. This could now apply to private companies that might be accused of hiring employees away from competitors, rendering them less able to compete.”  

What’s ahead for public companies  

The Market Outlook also provides valuable insight and advice for public companies:   

• “Increase in capital being invested in Directors and Officers Liability. New companies are entering the market, and existing carriers are strengthening their product offerings. Buyers can expect to see ample availability and capacity. 
• “Insurers will compete for market share. Fifty percent of our carrier and wholesale intermediaries see broader availability in the market in the upcoming year. As carriers compete for business, best-in-class companies can expect continued rate decreases. 
• “Favorable pricing for desirable accounts. While buyers may not see the dramatic reductions of 2023, average rates are expected to decrease from 1% to 10%. Buyers with adverse loss histories are likely to see rate increases in the 20%-25% range. 
• “Businesses will still face underwriting scrutiny. Underwriters will seek to find the delicate balance between winning and retaining accounts, and achieving profitability. As competition increases, buyers can expect to see more underwriting flexibility for accounts with strong management controls and favorable loss histories.”  

Partner with an experienced broker 

Even in a favorable D&O Liability environment, it’s essential to partner with an experienced broker who uses transparent methodology in taking a strategic approach to risk. Not all D&O Liability policies are identical. A skilled broker will guide you through your policy and explain key provisions, such as the definition of “insured,” and delineate D&O Liability coverage triggers. Additionally, a proficient broker will educate you on policy exclusions, such as responding to EEOC complaints or cyberattacks, and ensure that you have appropriate EPL and Cyber Liability Insurance to avoid coverage gaps.   

The current competitive market offers organizations the opportunity to secure advantageous policy enhancements, consequently elevating the marketability of your organization to desirable directors and officers. Take proactive measures to reinforce your coverage, rectify previous deficiencies and negotiate improved terms while favorable conditions persist.  

For a broader look at navigating insurance market conditions, download the 2024 Property and Casualty Market Outlook. The report provides valuable information on factors driving the current P&C market, with analysis categorized by lines of coverage — personal as well as commercial. 

To speak with a local broker who specializes in Directors and Officers Liability Insurance and has access to resources nationwide, contact Alera Group. 

CONTACT AN ALERA GROUP SPECIALIST  

About the author  

Dan R. Sanderson, CIC, CRM, CAWC
Partner
TriSure, an Alera Group Company   

Dan Sanderson has 28 years of insurance experience and holds multiple professional designations, including Certified Insurance Counselor (CIC), Certified Risk Manager (CRM) and Certified Authority on Workers’ Compensation (CAWC). With a focus on client advocacy, Dan designs customized insurance programs and advises on claims, safety training and loss prevention.  

Contact information:    

• dsanderson@trisure.com  
• Connect with Dan on LinkedIn