A new report from Gallagher finds that D&O insurance conditions remain favourable, here’s what it means for risk managers and their organisations

Recent turmoil in the banking sector and a lack of funding options have left many organisations facing an uncertain short-term future.

However, D&O insurance rates continue to be favourable, according to a new report from Gallagher.

directors and officers insurance

The risk consultants found that the D&O market in Asia is quite stable with not much movement in terms of pricing and available capacity in the past 12 - 18 months.

Asia did not have the radical pricing and capacity swings that the US and UK experienced at the onset of COVID, and therefore did not have the volatile downward spiral re-set back to pre-COVID prices and available capacity.

Japan had the least volatility where prices were up around 5% when the full impact of COVID on the market took place.

This was in part due to local Japanese capacity providers absorbing much of the required capacity as the US, UK and European carriers revised terms and conditions.

Sector updates:

  • Life sciences and tech:   Pre-2022, start-up funding was abundant, but rising interest rates and cautious markets now make investors scrutinise opportunities and insurers more vigilant.
  • Logistics and infrastructure:   Disrupted supply chains, labour shortages and the increasing cost of managing debt means clients in the sectors continue to face difficulties. ESG requirements are high on the risk agenda (as with so many industries) and D&O insurers want to see a robust plan demonstrating how clients will achieve their goals, rather than simply setting lofty targets with no tangible roadmap to meeting them.
  • Energy and natural resources:   The marketplace for risks in the natural resource sector has become more challenging due to the environmental and social impacts that it entails and the general move away from fossil fuels resulting in a fundamental change in businesses in the sectors and how D&O insurers view them, compared to 12 months ago.
  • Retail and hospitality:   Companies within the retail and hospitality sector have now escaped the restrictions of the COVID-19 pandemic. D&O pricing has been unrelenting in its downward trajectory, with an increase in competition from carriers looking to win business by enhancing their offerings and removing restrictive exclusions.

Another key factor which has held pricing stability is the fact that Asia is not particularly on the radar of MGA D&O capacity – which has been viewed negatively for pushing rates down predominantly from the London markets.

Meanwhile, in the Pacific, Australia is identified as a growth territory for London insurers, putting pressure on local providers.

Consequently, there is a significant interest by insurers in Side A and B Only programmes and D&O placements for private companies and those outside the ASX200.

What does it mean for risk managers?

Thanks to this, risk managers have been able to save money, build back limits and introduce previously prohibitively expensive ancillary lines, such as Employment Practices Liability (EPL), Pension Trustees Liability (PTL) and Crime insurance.

Alternative D&O structures, such as the use of Side A ‘Difference in Conditions’ (“DIC”) layers, have also been accessible and a popular introduction to existing or new programmes.

Capital markets remain stalled, with IPO valuations continuing to fall short of stakeholder expectations, especially in the wake of increased interest rates.

This lack of IPO activity and the insurance spending that goes with it remains a pressure on insurers’ budgets, and this drives a willingness in the sector to compete aggressively on good quality business.

What next?

Directors and Officers insurance policies protect businesses from claims which arise from decisions and actions by company managers.

As such, it is an important part of the risk manager’s arsenal. In an increasingly complex legal environment, businesses may face more litigation. Lawsuits are expensive, and the costs of defending them grows each year.

Businesses that don’t have a good D&O insurance program in place may struggle to attract and retain top talent, given the potential risks involved.