In much the same way as one cannot step into the same river twice, it’s hard to paint a clear picture of the direction of travel of the directors’ and officers’ (D&O) insurance marketplace, subject as it is to persistent fluctuations. That being said, Gallagher’s recent global market update on management liability insurance did provide a comprehensive snapshot of where the sector currently stands and what this means for insureds.
Gallagher revealed it has seen significant reductions in premiums across the board and limits increasing for many of its clients, a welcome result after “a bubble of D&O costs that reached unsavoury highs in the past few years.” Discussing the report, Laura Parris noted that the D&O market is a world away from where it was when she joined Gallagher’s management liability team as executive director 18 months ago.
Given her work on the front line of serving the D&O space, the research held few surprises for Parris but she highlighted that, across the market, there is some surprise at just how dramatically and how quickly pricing has come down.
“But, as pointed out in our report, that’s mainly due to the lack of IPOs taking place this year,” she said. “And therefore, many carriers have these very large budgets for new business that they’re looking to obtain and so they’re holding on to their incumbent positions on their renewals given the lack of new business at this time.”
One of the key takeaways of the report for Parris was its affirmation of Gallagher’s ability to maximise the current market conditions to achieve positive outcomes for its clients around both pricing and breadth of coverage. Market recalibration and new market entrants offering additional capacity have increased the opportunity for brokers to secure reduced rates and broader coverage, she said, and opened up the door to providing lower retentions.
“Of course there are challenges,” she said. “There is significant uncertainty, as we know, at the macro level given rising inflation, a looming recession environment and depressed financial market conditions causing significant volatility. These factors typically do drive up litigation risk and the cost of claims.
“In addition, there’s increased interest on ESG issues, and regulatory oversight specifically on climate change disclosures. That said, we’re seeing pricing and terms remaining unaffected for now by these factors.”
Given the fluctuating nature of the D&O market, the value of an experienced broker able to provide support and guidance to insureds is unparalleled. The current market conditions pose a clear opportunity for brokers, like Gallagher, with technical experience, to provide that support and guidance. And with that, she said, what Gallagher is increasingly seeing across the marketplace is carriers being more flexible, with increased competition allowing brokers to secure further coverage enhancements and ensure coverage is fit for purpose.
For Parris, whose first foray into insurance was as a D&O underwriter for AIG just before the financial crisis of 2008 hit, it has been remarkable to see the evolution of the market and to be serving the space at such an interesting time.
“And I have always found during my time within the D&O market that it’s such an important line of insurance for both the board and management team,” she said.
“Therefore, it allows us that close interaction with C-suite level individuals within the companies we work with. This level of engagement combined with the transparency that we get from our clients are some of reasons why I find working within the D&O space so interesting.’’