Tremendous growth in the number of Special Purpose Acquisition Companies (SPACs) has increased demand for Directors & Officers (D&O) insurance. As a result, insurers have been grappling with the growing stack of submissions for SPACs looking to secure coverage to protect against potential claims.
According to Bloomberg Law, between September and the end of 2020, the number of SPACs that went public skyrocketed. This increased market demand for coverage has backlogged carriers with submissions ― a problem exacerbated by fewer markets willing to write the risk due to the growing potential for lawsuits.
Increased Growth in Premiums
According to a recent report by Willis Towers Watson, the high demand for D&O coverage for SPACs has also been a key contributing factor in the increase in D&O premiums. Others include:
- The overall expertise of the SPAC sponsor and management team. Underwriters base their risk perception of a SPAC on the experience and strength of the company’s management team. This information is used to determine premiums, so it’s critical to highlight the strengths and quality of the SPAC.
- The warrant structure. The Securities and Exchange Commission (SEC) recently issued statements regarding the proper accounting of warrants. D&O underwriters may scrutinize the structure and terms of warrants, as well as how well a company adheres to the SEC’s guidelines and requirements regarding proper disclosure and accounting.
- Target industry. D&O underwriters may consider certain industries higher risk than others. While there may be limitations on reducing risk in this category, SPAC sponsors and management teams should be aware of the impact a specific industry may have on a perceived D&O risk.
By planning ahead and working with a D&O insurance expert who can negotiate appropriate coverage enhancements and pricing, SPACs can secure the coverage they need to mitigate their risk exposure and minimize premium costs.
The recent popularity of SPACs makes it worth examining the litigation risks for directors and officers of these companies. If you are a SPAC in need of D&O insurance, or would like to learn more about this vital coverage, contact the experts at Oakwood D&O. We have over 15 years of experience specializing in all aspects of Management Liability, with an ardent focus on Directors & Officers.
Get in touch – email Eli Solomon, CEO, at firstname.lastname@example.org or call (323) 686-7519