The directors’ and officers’ insurance (D&O) market has continued a period of stabilisation over the last quarter, according to a recent report by insurance brokerage firm Gallagher.
Analysts noted that, due to insurer competition, the record-high premiums seen in the previous two years have continued to decline.
The challenges seen from a capacity standpoint, particularly for public companies seeking larger D&O insurance limits, are no longer such an issue, Gallagher pointed out.
After going through a hard D&O market, analysts explained, insurers now have aggressive growth targets to hit. But a lack of IPO’s in 2022 – caused largely by geopolitical instability and macroeconomic uncertainty – , has led to low volume of newly public companies and premium income that follows them.
As a result, this shortage of IPOs has created a buoyant environment where the new capacity in the market find themselves facing up to increased competition for the existing pool of public companies. And without historic claims, they are no longer the cheapest.
Following a few years of continuous price increases, insurers are seeing significant price decreases, which is good news for D&O buyers. Sectors like retail, hospitality and life sciences are the ones that have seen larger decreases, with the latter seeing premium reductions as much as 40%.
Nonetheless, not all buyers are seeing price decreases, with those in certain sectors or with difficult claims not necessarily benefitting from the same degree of positive change, Gallagher noted.
The sectors which are still seeing more stringent conditions include logistics and infrastructure, due to the big issues affecting this industry, plus natural resources is less appealing to insurers due to the environmental and social impacts of many firms in this industry.
Additionally, technology companies have endured the brunt of D&O claims and are therefore also still viewed as somewhat risky, according to analysts.
When pricing risks, DE&I, ESG and the firms approach to cyber risk management are increasingly an area of focus for insurers when pricing risks. As a result of savings on D&O Gallagher believes that there is likely to be an increase in buying of ancillary lines such as EPL.
Gallagher said: “It is also important to note that, as D&O is a long-tail insurance line, maintaining a sustainable approach to underwriting and pricing is key as we move forward. Despite the market softening, it remains a challenging environment for brokers as the majority of deals are being re-marketed due to this increased competition.”
It concluded: “A healthier marketplace and increased supply has a positive impact on the overall terms of insurance programmes. Communication between retailers, clients and the market will remain key in order to keep this transition fluid and moving collectively towards a more stable marketplace in 2023 and beyond.”
