The local and international D&O market has rapidly contracted over the past years, displaying signs of transition as early as mid-2018. The D&O market is currently characterized by increasing prices, contracting capability, and increased frequency and severity of claims.
Premium Price Hike and Contracting Market Capacity
Double- or even triple-digit percentage increases in D&O pricing are relatively common. Because of more adverse developments in the previous year, the rising number and severity of claims in current years, and the challenging economic outlook, premiums were unlikely to stabilize this year.
In the first quarter of 2020, an estimated overall market potential for energy risk was around $300 million, a sharp decline from the nearly $900 million available at peaks in 2016 and 2017. The effect of the contraction is strengthened by conventional D&O insurers being mindful of the industry and reducing their total capacity deployed in this class. Capacity contracts with all vendors which place more pressure on tariffs.
Impact of Covid-19
US and global companies are feeling the effect on production and service capabilities as the COVID-19 pandemic continues to grow. In the coming months, this would undoubtedly lead to volatility in their financial results.
A director or officer may face a lawsuit in the case of COVID-19 alleging that their contingency planning was unsatisfactory or that, in reaction to the pandemic, wrong management decisions were made.
The basic terms and conditions of any D&O policy should be considered to decide if any allegation against a director or officer relating to management decisions resulting from COVID-19 could be protected under the regulation.
What to Consider When Renewing
Start the renewal process early and plan the internal stakeholders for the most competitive market conditions. Differentiate your risk, devote your D&O renewal time and money.
Involve the senior management, volunteer internal experts to talk to, and questions from pre-empted insurers about Covid-19. Consider your limits, as you may not be able to buy the same amount as before, and consider globally selling your risk, not just in your domestic insurance sector.
The challenging business conditions of 2020 will likely continue well into 2021. It is recommended to have constructive engagement with your D&O consultant to question past buying decisions to revalidate ongoing goals to make a material difference to both capability and prices during your D&O renewal.
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