Restraint needed from insurers in unprecedented German D&O market hardening

Following 30 years of low premiums, excess capacity and generous conditions, the German D&O market performed a U-turn in the 2021 renewals. Although it wasn’t unexpected, with the coronavirus following hot on the heels of growing claims, initially in the US and UK markets in 2018, the severity of the latest renewals posed a big challenge for German brokers in securing adequate cover for their clients. Sandra Dammalacks, of broker deas Deutsche Assekuranzmakler, outlined the new market reality in the German D&O market from a broker’s perspective, at the GVNW Cyber and Financial Lines 2021 conference that took place last week. The hardening market was not a surprise in itself, having started during the 2020 renewals. It was the accumulation of soaring premiums, considerable capacity reductions and tighter conditions that made it considerably harder to find the same breadth of cover as before and, assuming the cover was available, to afford the premiums. Ms Dammalacks said during her presentation during the GVNW event: “Capacity fell significantly in 2020 and 2021. For example, AXA XL stopped writing new business in Germany in mid-2020.” As for pricing, premiums rose by up to 400%. Moreover, Ms Dammalacks pointed out that excess-of-loss cover (XoL) was actually more expensive in some instances than the basic insurance premium. She also saw exclusions in XoL wordings – a first in her experience. “If conditions are restricted, especially in XoL business, with wording deviations and exclusions, the gap between liability and cover will increase,” she commented. Moreover, the coronavirus has led to some industries being practically excluded from the market, for example hotel operators and automotive suppliers. And it doesn’t stop there. There are also pending legislative changes set to increase the current risk aversion still further. A number of new laws have either come into force or will do so within the next two to three years, which will increase D&O liability. For example, there is the supply chain law, Lieferkettengesetz, due to be passed on 1 January 2023. It will increase the onus on companies to ensure that their supply chain complies with certain standards. Should they fail to do so, fines may be imposed of up to 10% of annual turnover. It all amounts to a market asymmetry, whereby providers are setting the conditions simply because they can. As the claims volume rises and looks set to rise further still in future, insurers want to stay ahead of the curve. They are also reviewing the building blocks within D&O policies to curb any provisions that may impede their flight to safety. For example, Ms Dammalacks noted a reluctance to write insolvency risks for the SME sector. Given the rising risk exposure, it’s reasonable to assume that insurers will become still more discerning with their wordings and more diligent in assigning a cost to each individual building block within their policies. Ms Dammalacks did concede, however, that the market had been due a correction. During the 30 soft-market years up to about 2019, premiums were low and fell further still in some instances. In addition, insurers were adding building blocks almost arbitrarily, it seemed, and at no extra cost. That was never going to last forever. Nevertheless, the market does have a role to play and it is not fulfilling its purpose if insurers refuse to write certain types of business, deem certain clients ineligible for cover or impose prohibitive prices. As the market seems to be going in this direction, Ms Dammalacks appealed to the insurance sector to maintain a sense of proportion and work with clients in a spirit of cooperation. “It’s important not to leave companies out in the cold, especially those hit hardest by the coronavirus crisis,” she warned. After all, Ms Dammalacks made the point that while it’s raining now, there will be a rainbow somewhere down the line. The industry needs to remember that and refrain from overreacting to the current malaise.

Restraint needed from insurers in unprecedented German D&O market hardening

Want to read this article?

Read Next

Ferma members told AI will bring risk and reward for corporate insurance buyers

Aon’s revenues up 5% as it completes $13bn NFP deal

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Ferma members told AI will bring risk and reward for corporate insurance buyers

Aon’s revenues up 5% as it completes $13bn NFP deal

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Want to read this article?

Read Next

Ferma members told AI will bring risk and reward for corporate insurance buyers

Aon’s revenues up 5% as it completes $13bn NFP deal

Warmer climate spreading risk of malaria and dengue to new regions

UN launches new net-zero insurance forum to replace NZIA

Pen extends fleet capacity deal with Zurich in Republic of Ireland

Related Articles