D&O Insurance

The financial and liability risks facing public company directors and executive officers have arguably never been greater. Securities Class Action (SCA) filings are at a record high with almost 9% of all public companies being sued for securities fraud in 2019.* So called “Event Driven” litigation in the form of shareholder derivative claims and SCA lawsuits has been filed against directors and officers for their alleged mismanagement of underlying issues as wide ranging as cyber breaches, privacy, the opioid crisis, wildfires, accidents, regulatory investigations, and sexual harassment. Settlement values and legal defense costs continue to rise, and there has been an increase in the number of regulatory investigations and enforcement actions. The ongoing economic impact of COVID-19 has yet to be fully realized but it has already devastated certain industry sectors and has heightened the risk of bankruptcy for many companies. To no great surprise, we have already seen a number of shareholder lawsuits arising from the coronavirus pandemic.

The directors and officers liability (D&O) insurance market was already deteriorating prior to COVID-19. Over the past year, insurance premiums and retentions were starting to increase, there has been less competition between insurers for business, and we have seen a contraction in global underwriting capacity as insurers have finally responded to the worsening claims environment and their poor profitability. COVID-19 has dramatically accelerated the deterioration of the market. Right now, companies are routinely seeing 50%+ premium increases and higher retentions when they renew their programs. In some instances, companies are forced to accept worse coverage terms and conditions or they just simply cannot secure the insurance limits they need or want.

This is the most challenging D&O insurance market in more than 15 years. More than ever, you need a strong and trusted broker partner who can help you successfully navigate through the dynamics of this “hard market” environment and who can effectively work for you to secure optimal pricing and coverage outcomes. It’s crucial that you ask the following questions when it comes to selecting your broker partner.

Premiums are going up, but broad D&O insurance protection is still available. Maintaining expansive terms and conditions through a transitioning market could mean millions of dollars in the event of a claim. Is your coverage really the best available?

In today’s market, you will experience exponentially better outcomes if you implement a well-defined strategy to take to the insurance market. Thinking outside the box will keep you from being at the whim of the insurance companies mandates to increase premium and retentions. Is your broker a market maker or a price taker?

In a soft market, the gap between clients with perceived excellent risk profiles and those viewed as more challenging shrinks significantly as carriers chase premium. In a hard market, tougher risks will be faced with significant price spikes and tightening terms. How is your broker differentiating you by highlighting your risk strengths and addressing any perceived challenges?

The last hard D&O market ended in 2004. If your broker has never had to deal with markets more eager to say NO than YES, there will be growing pains. Has your broker experienced a hard market?

When the market turns the other way, carriers remember the clients and brokers who were supportive and those who were not. What underwriters have you met with in the past? What is their authority? Are they the actual decision makers?

*Source: https://www.cornerstone.com/Publications/Reports/Securities-Class-Action-Filings-2019-Year-in-Review(opens in a new tab)