A recent Willis Towers Watson (WTW) D&O Marketplace Survey highlights how our current economic environment (due in part to COVID-19) continues to impact an already-challenged directors and officers (D&O) liability insurance market.
Here, we’ll look at key takeaways from the survey as they relate to D&O trends, and how this environment is fueling underwriter concerns regarding business re-openings.
Rates & Retention
Market conditions for new business will remain challenging; however, rate increases are predicted to remain modest for companies with a stable risk profile and preferred industries. As for renewals, private and nonprofit companies will fall into two camps: those with stable risk profiles and those with high-risk profiles and challenged industries.
The survey shows that:
- Insureds with low and stable risk profiles will likely experience flat renewals or decreases in select instances, while high-risk profiles remain challenging.
- Even smaller risks will face minimum retentions that will be highly scrutinized and regularly increased.
- For larger risks, excess markets have recalibrated increased limit factors. For challenged industries, inverted pricing may occur, where higher excess layer pricing may exceed the layers beneath it.
- Except for preferred risks, new capacity will be particularly challenging, with many carriers unwilling to arrange capacity for high-risk accounts — even at a higher premium.
COVID-19 & Economic Uncertainty
As the COVID-19 pandemic continues to impact the economy, issues regarding the timing and pace of business re-openings and the resurgence of employment growth will continue to challenge carriers. As an insurance agent, you can expect underwriters to remain focused on specific D&O risk concerns, such as a company’s financial strength, specific industry sectors, claims history, COVID-19 resilience, environmental issues, and compliance with social and governance policies.
Additional concerns include financial pressures, pandemic impact, antitrust allegations, regulatory uncertainty, loss-cost escalation, cybercrime and privacy violations, social inflation, event-driven claims, and systemic exposures.
Underwriting Changes & Challenges
A moderate tightening of terms similar to the first half of 2021 will continue in the new year, with D&O portfolio adjustments and increased underwriter scrutiny challenging certain high-risk buyers that include:
- Special purpose acquisition companies, including de-SPAC business combinations.
- Oil and gas, healthcare, life sciences, cryptocurrency, cannabis, retail, travel and hospitality, and higher education.
- Companies that are liquidity challenged and/or have pre-restructuring/bankruptcy risks.
Growth in traditional public offerings and ongoing SPAC-related activity will continue to fuel underwriter uncertainty. In addition, it is anticipated that underwriter scrutiny, high retentions, hard-market pricing and conservative terms are here for the foreseeable future.
Consulting with a D&O coverage specialist should be a critical part of any IPO, SPAC and de-SPAC transaction. 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 a primary focus on directors and officers.
Get in touch – email Eli Solomon, CEO, at firstname.lastname@example.org or call (323) 686-7519.