07 July 2022
Directors and Officers (D&O) insurance
Steve Bear, Executive Director, Financial & Professional Risks
The D&O liability insurance market has been a hardening market over last few years and an extremely challenging environment for aviation buyers. However, as we reach the mid-point of 2022, despite ongoing global uncertainty, conditions are improving, and we are now optimistic about client outcomes in the coming months.
Pre-pandemic backdrop
Even before the pandemic, the D&O market was in a state of flux, with many insurers correcting rates after years of soft market pricing.
From the early 2000’s through to 2015, there was a glut of cheap D&O capacity driven by a very benign claims environment and underwriting profits, but it proved to be unsustainable. As losses started to hit the D&O market (as well as the front pages of newspapers) around 2015/16, insurers woke up to the long-tail nature of D&O claims and realised they had been inadequately reserving for historic claims.
As multi-million dollar payments left the market, capacity receded and in some cases insurers closed their doors entirely. Premiums started to increase at double-digit rates and competition for new business became less and less.
Then the Pandemic hit, and the perceived economic fallout amplified the problem several fold.
Insurers retrenched and stopped writing new business, with the COVID impacted industries such as aviation most affected. Clients were left with no option but to renew with their existing carriers, at percentage increases sometimes running into the hundreds.
Those insurers left willing to renew reduced their limits, from soft market norms of say USD/GBP/EUR 10m-15m to as low as USD/GBP/EUR 2.5m, and any appetite for primary D&O for aviation almost completely dried up. As these limits reduced and premiums spiralled, many clients had no choice but to reduce their overall programme of D&O insurance, leaving the company balance sheet and the individuals at board level with reduced protection; all in the face of unprecedented wider global uncertainties.
Despite this market turmoil, Gallagher’s specialist Aerospace and Financial Risks teams have been working tirelessly in the background to be ready.
The current scene
As we transition out of the pandemic and adjust to a new normal, positively the D&O market has now started to improve.
The first quarter of 2022 has been an interesting one in the D&O market, with competing options returning for our insureds, and the aviation sector especially has given significant cause for optimism. Insurers are once again looking to write new D&O lines for airlines and associated services, with some clients securing a doubling of limit for less than half of the expiring premium, but uncertain times still lay ahead.
The Russian invasion of Ukraine was a moment for many underwriters to stop and reflect on their approach. Such a huge geopolitical incident can give rise to a shift in the market, but on the most part, particularly from a D&O perspective, it has proved to be a specific issue for a small number of companies - due to either having Russian exposure or having had sanctions imposed upon them.
As aircraft take to the sky once more, a backlog of demand and struggles to satisfy it have come to the fore, and insurer focus on ESG is at an all-time high. No more so than in the commercial aviation sector.
As international borders reopen without restriction, lockdowns and COVID-19 measures are looking to be a thing of the past, and most carriers have a healthy level of bookings. D&O underwriters now have more comfort around businesses concerning COVID-19 controls. However, with difficult worldwide events hitting the headlines recently, supply chain and operating disruptions have caused some headwinds that are contributing to the market not softening at too great a pace.
A recent surge in “Greenwashing” allegations have also shifted the focus; whilst good governance remains (and always was) a key underwriting consideration for any D&O insurer, the uptick in social inflation and the outrage that accompanies it is forcing regulators to sit up and take notice, with resulting investigations hitting the bottom line of insurers.
Advice for businesses seeking D&O cover
With so much uncertainty, it remains vitally important to work with an experienced broker, to find the right solution with the right level of coverage from the most suitable insurer.
Gallagher’s panel of preferred insurers and products for Aviation D&O coupled with our specialist knowledge in the sector make us the perfect strategic partner for the industry, and we remain optimistic about client outcomes for the remainder of 2022. In fact, we already have a growing number of aviation success stories in 2022.
With capacity increasing, overall limits returning to pre-pandemic levels and premium savings now achievable, Gallagher’s highly experienced team are ideally placed to capitalise on improvements in the market and successfully circumnavigate the uncertainty and challenges that lie ahead.
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Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 119013.