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Ripples of a pivotal Supreme Court ruling. Massive D&O settlements. Near-record numbers of federal securities class action lawsuit filings. Rising defense costs. Fewer publicly traded companies. The #MeToo movement. Thanks to these market trends over the last several years, it’s been an extraordinarily costly year for those who purchase directors’ and officers’ liability insurance.
The world’s top D&O insurers are starting to write less business and charge more for coverage.
Over the last 13 years, thanks to an abundance of capital in the market, both private and public companies have grown accustomed to lower pricing year after year. For example, up until the last two quarters of 2018, if you were purchasing $30 million of D&O coverage, and your program was written in layers of $10 million, the primary $10 million cost approximately 3% to 5% less than the previous year, while the excess limits received even larger premium decreases.
However, in the last four to five months, this has flipped. Buyers are seeing sudden double-digit rate increases in their D&O premiums. With insurers experiencing unsustainable direct loss and defense & cost containment (DCC) ratios, the D&O marketplace is in the midst of a major shift.
In this blog, we list the factors behind the drastic spike in D&O insurance premiums in the last few months and what companies can expect in the future.
Trends in D&O Claim Frequency from NERA Economic Consulting
What to Expect in the Future
Insurance companies —both large and small — will continue to write fewer D&O accounts and charge more. For buyers of D&O insurance, it’s becoming harder to negotiate because insurers are willing to walk away. We’ve experienced situations where insurers are demanding a 10% to 15% premium increase on the primary $10 million layer of coverage, and the first excess layer of $10 million is looking for a 25% increase.
In the coming year, we can expect pricing to rise even further. Public companies buying D&O insurance will likely receive overall program increases in the 5% to 8% range (which accounts for a 9% to 14% increase on the primary layer with smaller increases with the excess layers). Private companies should expect 5% to 10% increases.
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