A new report from Gallagher finds that D&O insurance conditions remain favourable, here’s what it means for risk managers and their organisations

Recent turmoil in the banking sector and a lack of funding options have left many organisations facing an uncertain short-term future.

However, D&O insurance rates continue to be favourable, according to a new report from Gallagher.

directors and officers insurance

The wider economic outlook for the UK and Europe remains uncertain, however the expected winter of slow (to no) economic growth was largely avoided and stock markets have, instead, achieved record highs.

The risk consultants found that despite the economic headwinds, insurer competition for business remains and the resulting downward trend in premiums is driving positive results for many businesses and their risk managers.

Additional products have also started to return to the market, as insurers look to complement their offerings and recoup premium lost on D&O renewals.

In the US after rising rates in 2019 and some significant market challenges in 2020 and 2021, the D&O market for US public companies finally flattened out by the end of Q1 2022.

Sector updates:

  • Life sciences and tech:  Pre-2022, start-up funding was abundant, but rising interest rates and cautious markets now make investors scrutinise opportunities and insurers more vigilant.
  • Logistics and infrastructure:  Disrupted supply chains, labour shortages and the increasing cost of managing debt means clients in the sectors continue to face difficulties. ESG requirements are high on the risk agenda (as with so many industries) and D&O insurers want to see a robust plan demonstrating how clients will achieve their goals, rather than simply setting lofty targets with no tangible roadmap to meeting them.
  • Energy and natural resources:  The marketplace for risks in the natural resource sector has become more challenging due to the environmental and social impacts that it entails and the general move away from fossil fuels resulting in a fundamental change in businesses in the sectors and how D&O insurers view them, compared to 12 months ago.
  • Retail and hospitality:  Companies within the retail and hospitality sector have now escaped the restrictions of the COVID-19 pandemic. D&O pricing has been unrelenting in its downward trajectory, with an increase in competition from carriers looking to win business by enhancing their offerings and removing restrictive exclusions.

Now, in 2023, Gallagher says it is currently seeing double-digit declines for many renewals.

In Canada, after difficult renewal cycles between 2020 and the first half of 2022, the market saw an easing in the latter half of 2022.

Rate decreases accelerated in early 2023, especially on towers that saw the largest rate increases on prior renewals. Carriers have largely repaired their books, and report significantly improved combined ratios in D&O.

As a result, many insurers’ focus is on client retention, as well as strong new business targets. This provides a great opportunity for risk managers to access better deals.

What does it mean for risk managers?

Thanks to this, risk managers have been able to save money, build back limits and introduce previously prohibitively expensive ancillary lines, such as Employment Practices Liability (EPL), Pension Trustees Liability (PTL) and Crime insurance.

Alternative D&O structures, such as the use of Side A ‘Difference in Conditions’ (“DIC”) layers, have also been accessible and a popular introduction to existing or new programmes.

Capital markets remain stalled, with IPO valuations continuing to fall short of stakeholder expectations, especially in the wake of increased interest rates.

This lack of IPO activity and the insurance spending that goes with it remains a pressure on insurers’ budgets, and this drives a willingness in the sector to compete aggressively on good quality business.

What next?

Directors and Officers insurance policies protect businesses from claims which arise from decisions and actions by company managers.

As such, it is an important part of the risk manager’s arsenal. In an increasingly complex legal environment, businesses may face more litigation. Lawsuits are expensive, and the costs of defending them grows each year.

Businesses that don’t have a good D&O insurance program in place may struggle to attract and retain top talent, given the potential risks involved.