Recent data shows that US companies are paying more for directors and officers (D&O) liability insurance – all thanks to bigger lawsuits being filed against companies.
Citing data from the indexes of firms such as Aon and Marsh & McLennan, The Wall Street Journal reported that premium rates for D&O insurance in the US spiked 44% to 104% in the first quarter compared to Q1 2019.
Aon said that none of the primary policies that renewed in the first quarter – with the same limits and deductibles – got a lower price. In an effort to control the increases, nearly half of Aon’s clients changed their deductibles or policy limits, or even both.
Brokers have suggested that, overall, a surge in shareholder litigation – both in terms of the number of cases and the size of jury awards and settlements – is the main driver in increasing D&O insurance costs.
WSJ mentioned a June 10 report from A.M. Best, which said that the spike in litigation had been caused by events such as cyberattacks, the #MeToo movement and wildfires. The report also said that companies are facing potential litigation over “emerging exposures” such as Environmental, Social and Governance (ESG) issues, as well as climate change.
Apart from the number of litigation-triggering events increasing, the number of lawsuits filed against companies has also grown. Data from Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse found that a total of 428 new class-action securities cases were filed across US state and federal courts in 2019 – the highest number on record.