Although Directors & Officers (D&O) Liability claims tend to be less frequent than General Liability claims, when they do arise, they can be severe. While you hope you never have to collect against your D&O insurance policy, it’s a coverage you can’t afford to forego if your company has officers, directors, managers, committee members, or other parties, depending on your organizational structure. And as organizations of all types and sizes have seen, the rates have been on a wild rollercoaster ride over the past few years.
Here’s a look at how the D&O insurance pricing landscape has changed, what we expect to happen next, and how you can position your organization for the best rates in the future.
D&O insurance protects both your company as an entity and your directors and officers as individuals against claims of actual or alleged wrongdoing in managing the company, through an error, omission, neglect, or breach of duty. The policy covers the legal fees associated with defending against a claim, along with the resulting settlement or award.
Much like real estate, every type of insurance—including D&O—goes through hard and soft market cycles. Hard markets are characterized by limited competition among carriers, which results in less capacity, more restrictive coverage, and higher rates. In soft markets, more carriers are vying for business, leading to more capacity, more expansive coverage, and lower rates.
From 2019 through the second half of 2021, a hard D&O market left both nonprofits and for-profit businesses facing very high rates and coverage restrictions, even if they had no history of claims or lawsuits and were willing to increase their retentions. Then around mid-2022, the D&O insurance market flipped suddenly and dramatically, primarily as a result of three significant shifts:
With little warning, carriers began fighting fiercely for D&O business, offering greatly reduced rates to new clients and any profitable accounts they hoped to renew. In turn, brokers like B. F. Saul Insurance were able to market D&O accounts aggressively to obtain the most competitive coverage, retention, and premium for each client.
Without a crystal ball, it’s difficult to say when the D&O insurance market will harden again, whether the shift will be sudden or gradual, and how long that market cycle will last. The one thing we do know for sure is that the D&O market won’t stay soft forever.
Current economic pressures are likely to trigger an increase in D&O coverage claims in the coming years for two reasons:
On the other hand, many underwriters are no longer subject to strict underwriting guidelines pertaining to COVID. When COVID struck, carriers and underwriters faced sudden and intense underwriting restrictions due to the uncertainty of the impact that COVID would have on businesses. Now, carriers have more flexibility and may resume writing certain classes of business.
No matter the state of the D&O landscape, it’s important to understand which factors impact your rates—some of which are out of your control and others which you can influence.
Given the dynamic state of the D&O insurance market, how can your nonprofit or for-profit organization obtain the best coverage at the best price? Teaming up with an independent insurance broker is an important first step.
With decades of D&O experience, B. F. Saul Insurance advisors keep our finger on the pulse of the insurance industry overall and the D&O market specifically, monitoring the changing landscape so we can best protect our clients. When market conditions are volatile, we work closely with you well ahead of your renewal to get coverage bound and rates locked in early. We also engage with underwriters we’ve established relationships with—both the incumbent and others—to market your company aggressively to obtain the best combination of rate, coverage, and retention.
It also pays to take proactive steps to mitigate your D&O risk and make your organization as attractive as possible to carriers. Best practices like the following can reduce your D&O risks and improve your rates: