The rate of increase in prices for directors’ and officers’ (D&O) insurance is now well and truly on the decline after eye-watering highs.
A survey by insurance company Marsh finds that D&O insurance prices rose 24% in the fourth quarter of 2021, though this was a reduction on the 61% hike in the third quarter.
The deceleration follows the recovery of the insurance sector: the previous year had seen a number of big providers exit the UK markets, leaving companies and directors with fewer place to find cover. Those departures had driven rocketing price rises of 136% in Q1 and 92% in Q2. Late in 2020 prices rose by 127%.
However, the latest news takes price rises to a point lower than they were back at the beginning of 2018, and nowhere near the high of Q4 2020 when prices rose 154%.
In Europe, meanwhile, D&O prices have “continued to be stable”, mainly as a result of an increase in competition among providers and capacity. Some sectors, life sciences and technology, saw rate reductions.
However, D&O prices have seen much turbulence since the end of 2019. In 2020 a number of big players withdrew from the D&O market, including Axa XL, based on growing concerns about levels of claims, pricing and profitability.
D&O insurance and insolvency risk
Observers were concerned that Axa’s retreat from D&O left a big hole in the market. Other insurers to leave the market include Axis, Vibe and Neon. Most appear to have been concerned about the prospect of a rising number of claims caused by the pandemic.
When Allianz, another big insurer, looked at the insurance market for 2022 it found that an increased risk of insolvency, because of the government relaxing state pandemic support, would remain a driver of D&O claims in 2022.
Other claims could be caused by false or misleading ESG claims, lawsuits brought in US courts by shareholders of non-US domiciled companies, and the growth of Special Purpose Acquisition Companies (SPACs).
But insolvency remains the big risk. “Insolvency exposures remain a key topic in the D&O space,” said Shanil Williams, global head of financial lines at Allianz, in a recent report.
While D&O appears to be falling, insurance for cyber crime increased dramatically in Q4 by 92% “driven by ransomware claims”.
Last year a report revealed that though the number of companies experiencing a ransomware attack has fallen, the average cost had risen from $761,000 to $1.85m. Writing for Board Agenda, Kamal Bechkoum, head of business and technology at the University of Gloucester, commented: “The new reality of ransom attack behaviour appears to be a switch from large-scale, automated attacks to more targeted and specific objectives involving expert criminals getting hands-on-keyboards in their attempts to penetrate an organisation.”