July 2023 Market Update – Management Liability

Management liability is generally designed for small-to-medium enterprises (SMEs) with multiple types of cover to assist in protecting organisations and managers against various claims. Whether an organisation will have access to the covers available depends on its industry, risk management, loss history, and the location of employees. These factors will also affect premium, excess rates.

Despite rates softening with insurers offering renewal terms per expiry or at reduced rates, globally, risks to directors and officers are increasing, meaning insurers must operate in a fast-evolving claims environment.

Since our last market update in January, insolvency cover has remained difficult to procure and premiums are continuing to rise which is causing a significant issue for organisations. Insolvency is and will remain a significant concern due to the changing geopolitical landscape that brings increased inflation rates, energy costs and supply chain issues. Insurers are becoming increasingly stringent as to who they wish to provide solvency cover for, taking a particularly cautious approach to the construction and manufacturing industries as they have high exposure to inflationary pressures. Insurers are requesting that organisations provide financial statements (externally audited) and where healthy financial statements are provided this works favourably and insolvency cover can generally be obtained.

Additionally, ESG exposures are a concern and litigation has gained traction in relation to climate change. The risks attached to this include financial and reputational consequences and as such, insurers may look closer at ESG in the future when considering placement of insurance. See our article covering ESG litigation trends here.

There has been an increasing number of cyber related incidents and claims arising from cyber-related fraud such as social engineering fraud. It is expected that cyber-crimes will become more sophisticated in the future driven by the use of artificial intelligence and therefore an increase in insurance premiums is expected. Boards need to ensure they have strong protocols and procedures in place as insurers continue to tighten policy language and underwriting standards to reflect increased risk exposures.

Statutory liability premiums have continued to increase due to the impact of occupational hazard and worksite incidents, and enquiries from regulators, especially within the building and construction industry. Social and economic factors have also had an effect on recent Employment Practices Liability (EPL) claims. Societal changes of note include whistleblowing and the “Me Too” movement.

Unlawful discrimination, bullying and harassment have been the main types of claims over the past number of years however recently new claims are arising from socially driven movements such as equity and inclusion initiatives. Downward changes in the country’s economy has put financial strain on companies. An economy in recession has been shown to cause an increase in EPL related suits with many companies conducting layoffs and terminating employees. As such, there is still an increase in EPL claims and consequently premiums with insurers adjusting their underwriting practices and pricing.