New players moderate UK D&O rate increases but ESG adding risk

An influx of new entrants to the UK D&O liability market will help moderate rate increases for buyers in the second half of 2021 and into 2022, but things look set to remain tough. Increased competition from more than a dozen new entrants to the UK D&O market has “acted as a check on legacy insurers’ pricing,” Beth Thurston, head of UK management liability at Marsh, told Commercial Risk Europe. And with rate increases still strong, further players may yet enter the D&O space, she added. “New entrants are providing additional capacity as the broader appetite for new business still remains below historic levels,” Thurston said. Marsh tracked an increase of 127% in UK D&O rates during 2020, peaking at a high of 154% in the fourth quarter. Rate increases have since slowed to 136% in Q1 2021 and 92% in Q2, dipping below 100% for the first time since the fourth quarter of 2019. Thurston said this deceleration trend is expected to last out the year and carry over into 2022. Though with risk profiles under close scrutiny at renewal, buyers need to work harder to differentiate themselves to benefit. Thurston said some buyers received “very favourable renewal terms” in the first half of this year, particularly where the risk of Covid-19 exposure had dissipated. On the flipside, buyers that renewed before Covid-19 last year saw significant rate increases in the first half of 2021, particularly if they had been negatively impacted by the pandemic, Thurston said. The D&O market has largely escaped the volume of pandemic claims that many underwriters had feared. But there is still the potential for further Covid-19-related losses amid uncertainty over how long the pandemic will take its toll on operations and, crucially for D&O liability, its impact on solvency. “A primary risk issue that D&O insurers are watching closely is the lingering impact of Covid-19 and companies’ emergence from that environment. Underwriters are particularly focused on companies’ solvency and financial health as any government support provided during the pandemic is withdrawn,” Thurston said. The threat of claims in the D&O space remains high and insurers are still taking a conservative approach to D&O underwriting. At the same time, insureds are aware of the increased exposure facing directors and officers, and will start to seek greater limits, Thurston predicts. “Insureds are generally taking a tentative view on whether now is the time to review limits,” she said. Thurston added that there is a degree of “concern and acceptance” at board level that individuals face increased levels of liability risk. “With volatility diffusing for the remainder of this year and increased capacity, we can expect to see more demand from buyers for greater limits as we move into 2022,” she said. One growing area of risk, and where buyers can differentiate themselves to insurers, is ESG issues. “ESG is likely to increasingly have an impact on insurers’ appetite for a particular risk,” Thurston said. D&O underwriters are increasingly looking at potential exposures to climate change risks and sustainability, while also casting the ESG net to governance as well as diversity and inclusion, she explained. ESG issues have been on investors’ radars for some time and will remain a focus “for the foreseeable future”, with concerns around ESG also gaining traction with governments and regulators, said Thurston. The uptick in shareholder activism and litigation based on issues around ESG is likely to continue, she said. Even small stakeholders can “cause disruption, spur litigation and force change in the boardroom”, the broker continued. She added that the changing risk landscape facing directors and officers “is fertile ground for litigation”, and advised companies to review their D&O risks and ensure their D&O coverage matches up.

New players moderate UK D&O rate increases but ESG adding risk

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