Market update – Directors’ & Officers’ Liability
The Australian D&O market is estimated now at $1.1 billion in gross written premium. Just 5 years ago it was $250m. We are expecting continuing increases of up to 250% on publicly traded companies, whilst private companies in areas most affected by COVID19 (like tourism and hospitality) as well as construction (due to exposure on statutory liability and other “delay” concerns) will experience on average 50% uplifts. Outside of those industries, increases of 20% will be a positive result.
Publicly traded companies have been impacted by shareholder class actions. They have experienced a narrowing in cover and have had in some circumstances their policy deductibles double. Companies are it seems purchasing as much limit as they can, based on their budget for the class of insurance, rather than purchasing cover based on claims amounts, market capitalisation or other trending.
For small cap publicly traded companies, cover for the corporation in connection with the trading of its securities (“side c”) is becoming almost impossible to obtain. There are 5 markets who offer the cover and the price is cost prohibitive. Where class-action statistics are historically made against larger market cap companies, it begs the question as to why they are obtaining more competitive rating than smaller cap companies?
As regards privately held companies underwritten under “management liability policies”, insurers continue to reduce the threshold test to offer the product suite incorporating cover for the entity in addition to insured persons. The market’s preference to move back to separate products for persons as distinct from the company, we consider, stems from losses sustained from “company covers” that have not been properly rated for and “thrown in” under the management liability suite of insuring agreements.
In particular, statutory liability, crime, tax audit and employment practices liability are all coverages that have been in past years more susceptible (that is, they have had more claims frequency under private D&O placements) to claims than those made under the directors’ and officers’ liability insuring agreements.
We have seen more aggression from environmental and work health & safety regulators impacting this class. Some insurers have taken the position to completely remove any cover under the crime section of these policies in connection with social engineering claims, and there has been a move to more traditional “employee theft” fidelity cover as distinct to broadform crime cover.
As a whole, broader insolvency exclusions are being applied and directors need to be aware of the implications of same.
Publicly traded companies have been impacted by shareholder class actions. They have experienced a narrowing in cover and have had in some circumstances their policy deductibles double. Companies are it seems purchasing as much limit as they can, based on their budget for the class of insurance, rather than purchasing cover based on claims amounts, market capitalisation or other trending.
For small cap publicly traded companies, cover for the corporation in connection with the trading of its securities (“side c”) is becoming almost impossible to obtain. There are 5 markets who offer the cover and the price is cost prohibitive. Where class-action statistics are historically made against larger market cap companies, it begs the question as to why they are obtaining more competitive rating than smaller cap companies?
As regards privately held companies underwritten under “management liability policies”, insurers continue to reduce the threshold test to offer the product suite incorporating cover for the entity in addition to insured persons. The market’s preference to move back to separate products for persons as distinct from the company, we consider, stems from losses sustained from “company covers” that have not been properly rated for and “thrown in” under the management liability suite of insuring agreements.
In particular, statutory liability, crime, tax audit and employment practices liability are all coverages that have been in past years more susceptible (that is, they have had more claims frequency under private D&O placements) to claims than those made under the directors’ and officers’ liability insuring agreements.
We have seen more aggression from environmental and work health & safety regulators impacting this class. Some insurers have taken the position to completely remove any cover under the crime section of these policies in connection with social engineering claims, and there has been a move to more traditional “employee theft” fidelity cover as distinct to broadform crime cover.
As a whole, broader insolvency exclusions are being applied and directors need to be aware of the implications of same.
