AXA XL warns over unsustainable D&O pricing and says European cyber market needs to ‘catch-up’

The big price swings in D&O insurance suggest that the market isn’t functioning properly and needs to show more discipline because it is in danger of once again getting to unsustainable rating levels, warns Etienne Champion, chief underwriting officer (CUO) for Asia Pacific and Europe at AXA XL. He also urged his fellow insurers not to make the same volatile pricing mistakes in the European cyber market, which the CUO believes remains disjointed and needs to catch up with the US. Champion told Commercial Risk Europe just ahead of the Ferma Seminar that European corporate insurance managers can expect more predictable market conditions at year-end renewals. He said there will be “fewer surprises” because of structural market changes over recent years but expects pricing to remain “healthy” for insurers across most lines of business. D&O, however, is a notable exception to the wider market trends, continued the CUO. “We have seen pricing declining steadily over the past 18 months following two years of steep price correction and capacity restraints. D&O rates have fallen for the fifth consecutive quarter and we are now nearing the 2019 levels of pricing. This reflects that a lot of nimble capacity has come into the market, putting pressure on the price,” he said. But Champion believes that D&O rates are getting near to unsustainable levels, and urged his fellow insurers to learn lessons and start maintaining discipline in order to avoid a return to the huge price increases that troubled buyers in 2019 and 2020. “I would like to warn the industry that sustainable pricing levels will be required at some point to avoid repeating the turmoil we have seen in the correction over the past few years,” he said. Adding: “We are getting near to the point of whether the rates are unsustainable. Yes there is price correction because there is that new, fresh and, some would say, naïve capacity that has come into the market, but let’s not forget that those in the $50m to $75m layers of the D&O programmes are still the same players that lived through the hurdles of 2019 and 2020. I am calling for a collective memory of what happened.” He said the big rate swings for D&O cover is “surprising” given it is a long-tail class of business. Stressing that the casualty market has been much less “bumpy” for buyers, he said the “ups and down in D&O as a long-tail line of business suggests it is not functioning properly”. “We have to be wise and know where we are coming from. It is a long-tail line of business and the movement we have seen over the last 18 months must at some point come to a sustainable level, or history will repeat itself,” said the CUO. The other line that has swung from big increases in recent years to flat or even softening conditions as we approach year-end renewals in Europe is cyber. Champion thinks cyber rates may need to be adjusted upwards if the resurgence in ransomware losses this year continues, but he thinks insurers should be able to deliver more consistency to cyber buyers than they have for D&O cover. “We have seen [cyber] rates coming down and we think this is a reflection of the improved cyber security and maturity among the insured companies, and a reduction in ransomware activity in 2022. But the 2023 trend is clearly going in the opposite direction, so we think further adjustment in pricing may be required to ensure this fast-growing market is growing sustainably,” he said. “Cyber standalone is the fastest growing line of business in the insurance industry. It is rather a short-tail business because ransomware and ensuing losses are currently the bulk of the losses we see. The third-party element is more remote. Therefore it enables, like you see in property, the market to correct quite quickly if we are good with our data. So I don’t foresee what is happening in D&O to happen in cyber. We should be able to make sure we provide a sustainable and rational support for our clients and not the ups and down we have seen for certain other lines of business,” he added. But Champion thinks the European cyber market needs to mature and “catch up” with what is on offer in the US. “The European market is fast growing but as a whole must mature as it grows. The product delivery is key. We have clients complaining that the product is less and less relevant, which is very concerning, and we have to listen to the feedback of those clients,” said Champion. “Why do they complain that the product is less relevant? Having listened to some of those clients, it is not so much the trading environment they are concerned about but rather the delivery on the promise. The European market is still disjointed in how we deal with the consistency of risk assessment, the incident response, the claims handling and the like. We have to mature and improve delivery. We, of course, continue to listen to clients and we continue to work to try to be on top of the game,” he added.

AXA XL warns over unsustainable D&O pricing and says European cyber market needs to ‘catch-up’

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