Rate-hike pressures were already robust for directors & officers liability insurance, but COVID-19 has kicked that into overdrive, according to a new Marsh report.
“Although the current market upswing dates back to the third quarter of 2018, the pace of change – exacerbated by the pandemic – is now accelerating,” the report found.
Marsh tallied a 44 percent increase in total program pricing for public companies in the 2020 first quarter and a 26 percent increase in primary rates. About 95 percent of Marsh clients saw their pricing jump after renewing their D&O insurance programs during Q1 2020. Primary pricing ticked higher for 89 percent of clients, Marsh said.
These hikes continue a trend of doubled-digit D&O price hikes for public companies going back to 2019, according to Marsh. At the same time, the firm said the pandemic’s full impact on D&O pricing is not yet known, despite concern about coverage trends from organizations and insurers.
Marsh said that rate hikes should keep accelerating at least through the 2020 third quarter, and insurers have said that they expect current conditions to continue.
“Insurers have suggested that current conditions will persist for several years, with the COVID-19 pandemic only adding to already worsening conditions,” the report notes.
One of the more difficult side-effects of the pandemic is expected to be COVID-19 lawsuits, according to Marsh, though COVID-19 exclusions are not yet widespread. That will change over time, the report notes, with expectations of more trouble on the legal front as insureds challenge coverage denials.
“Some insurers are introducing insolvency exclusions and – in some circumstances – requiring that buyers sign warranty letters,” the Marsh report explained, adding that a number of D&O lawsuits relating to the pandemic are already filed, involving both securities class actions and shareholder derivative actions.
“Insurers are bracing for more litigation in the coming months, which could continue to affect pricing as well as terms and conditions,” Marsh said.
Regarding the months ahead, carriers are particularly worried about securities litigation, even beyond COVID-19. Marsh cites data pointing out that 98 class-action suits were filed in the first quarter, with expectations of about 392 total filings for the year.
That is a modest dip compared to the last three years, but insurers remain worried about managing D&O costs. According to Marsh, carriers are toughening policy language and claims. That, with price hikes, is leading customers to purchase lower limits. One potential outcome: alternative coverage such as D&O trusts or captives.
Marsh’s full report is “COVID-19 Adds Rate Pressure for D&O Buyers.”