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Directors and officers liability insurance policyholders are continuing to enjoy lower rates, increased capacity and broadening terms and conditions in their programs.
Competition continues to be particularly intense in excess layers, say experts, with overall program rate decreases reaching double digits, depending on the risk. Meanwhile, one relatively new area of coverage that is receiving attention is for entity regulatory investigations, although the cost of the coverage has deterred widespread uptake by policyholders.
Graeme Harper, executive vice president of global insurance for Jacksonville Florida-based financial services technology firm Fidelity National Information Services Inc., who works with Wells Fargo Insurance Services USA Inc., said his just-completed D&O renewals “went very smoothly.” It is “standard procedure for risk managers to look for lower premiums and broader coverage, and we achieved both,” he said.
“There’s going to be very, very few insureds that don’t have good choices available,” said Kevin LaCroix, executive vice president of RT Pro Exec, a division of R-T Specialty L.L.C. in Beachwood, Ohio.
“You’re not seeing huge reductions in primary, but it is still possible to secure savings in most cases at the excess level,” he said. The “single most important factor” in the market is abundant capacity.
“Everyone wants to offer excess, but there’s only a few that want primary,” said Peter Taffae, a D&O liability insurance expert at Los Angeles-based wholesale brokerage Executive Perils Inc.
Meanwhile, “terms and conditions continue to expand as primary D&O markets try and differentiate themselves from competitors,” said Steve Boughal, New York-based vice president and chief underwriting officer of Hartford Financial Products, a unit of the Hartford Financial Services Group Inc.
“I don’t see anything on the horizon which suggests anything’s going to change,” and “if anything, we saw increased rate and price erosion” in 2016, said Simon Hodge, Atlanta-based professional risk practice leader at Wells Fargo Insurance Services USA.
In a report issued in October, Willis Towers Watson P.L.C. predicted that overall rates will remain flat to down 7.5% this year, with public company primary coverage down 5% to flat, and excess coverage down between 5% and 15%.
However, “as competitive as this market is, it’s different for each risk,” said Rob Yellen, New York-based executive vice president of Willis’ FINEX North America.
In one case, a Crystal & Company client who had been expecting to get a 15% decrease in his D&O program experienced a decrease of more than 25%, said Brian Dunphy, New York senior managing director of the management and professional risk group at Crystal.
“That’s just because good-quality, platinumstandard risks that have no issues with claims and don’t present any type of cause for concern are highly sought after for obvious reasons, and people will do whatever they can to get those accounts, including really lowering their prices,” he said.
About 85% of Marsh L.L.C.’s clients are getting reductions with perhaps 5% experiencing flat rates and 10% seeing increases, with those seeing increases having “challenged risk profiles,” said Greg Spore, the broker’s U.S. FINPRO placement leader in Chicago.
“There’s sort of a level of desperation on behalf of D&O underwriters to write business,” said Brian Wanat, New York-based CEO of the U.S. financial services group at Aon Risk Solutions.
However, some risks — education and health care in particular — are finding it harder to find capacity, with insurers “trying to selectively trim their exposures to be less exposed to the more volatile classes,” said Bert Spunberg, New York-based senior vice president and practice leader of executive risk for Hiscox USA.
Experts say one hot-button issue has been expanded entity coverage for regulatory investigations. At least to date, the takeup rate for this coverage has been relatively low because of the increased premiums sought by insurers.
“Most of the clients I work with are evaluating carefully the relative benefits of entity coverage of regulator investigations,” said Mr. Hodge, noting firms tend to buy coverage for the benefit of their directors and officers.
“There’s very few clients at this point that have decided to spend the additional money and partake of the additional coverage,” said Mr. Wanat.
“There’s a lot of interest in entity investigations coverage, just not a ton of interest in paying for it” because of its prohibitive cost, said Jerry Henderson, Glendale, California-based area executive vice president for Arthur J. Gallagher & Co.
Mr. Henderson said the coverage must be tied to a securities claim, in which case Foreign Corrupt Practices Act coverage may be obtained as well as an add on to entity coverage.
“Where I think the market needs to go” is providing investigation coverage if any regulatory body launches an investigation, he said.
Experts predict an eventual broadening of coverage in this area. However, Mr. Dunphy said, the industry “is waiting to see the posture of the incoming administration on many different things, and that includes its regulatory posture.”
Beazley P.L.C., together with Hiscox, introduced such a product, Entity+, in January 2016. When a securities class action is filed against a company, the product provides coverage for costs incurred in response to informal and formal investigations related to the SEC’s enforcement division. It also provides, on a coinsurance basis, “look back coverage” for costs incurred in responding to the investigation before the launch of the securities class action.
While the initial takeup rate for this “investigation and inquiry” insurance has been slow, that was expected because it is “extra budgetary,” said Rachel Turk, Beazley’s London-based focus group leader for D&O.
Those who are interested in the product either have had investigations in the past and know how expensive they are, or are more sophisticated, while CEOs and chief financial officers are more inclined to purchase the coverage than the risk manager, she said.
Directors and officers liability insurance experts will be watching closely to see the new trends that may emerge with the Trump administration.