The first half of 2022 has been an interesting time for the Directors’ & Officers’ (D&O) liability insurance market.
The good news is that the first half of 2022 has been a brilliant time to analyse your D&O coverage and benefit from some cost-saving opportunities. At Gallagher, we have seen significant reductions in premium across the board and limits increasing for many of our clients. Of course, these Insured’s are very happy to join Gallagher or renew their existing programmes with a return to deflating premiums, especially in a period of rising costs elsewhere in their operations or supply chain and after a bubble of D&O costs that reached unsavoury highs in the past few years. Undeniably, this persistent fluctuation of D&O pricing can be a source of frustration for companies but in the moments of lowering costs, we can find positivity.
“We have seen significant reductions in premium across the board and limits increasing for many of our clients.”
“It’s a good time to work with a broker who understands the market.”
The wider impact on capital markets has played into clients’ favour at times – a stall in IPOs along with the insurance income derived from it means that insurers have to make budget elsewhere, often resulting in them competing aggressively on new and existing business. Additionally, as new insurers continue to enter the D&O market and try to assume space, the related competition means Gallagher is able to secure much lower prices for clients than were available in the market last year.
As further signs of pricing stabilisation came to the fore and insurers continued their renewed appetite for new business this year, 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. However, from a D&O perspective, it has proved to be a very specific issue for a small number of companies due to either having Russian exposure or having had sanctions imposed upon them. As the current conditions of spiralling inflation will take time to surface and D&O claims are long tail by nature, the pricing we are seeing right now is likely to remain unaffected for now so It’s a good time to work with a broker who understands the market.
Our view for 2022 and beyond remains unchanged; although pricing will not return to the lows of pre-pandemic or soft market levels in the short-term, working with an experienced broker is the best way to secure good premiums. We encourage all of our existing customers and those wanting to make the change to experience the premium support, service and expertise of Gallagher to reach out and discuss the options that will best suit their business. For these companies, we will secure the most competitive terms in this favourable current market, delivered with a first-class personal service.
Life Sciences
The Life Science market has seen further competition, on both primary and excess layers, during the first half of 2022. This has mainly been driven by a combination of additional capacity entering the market and incumbent carriers looking to maintain their participation.
A further improvement in market conditions has seen carriers willing to entertain lower retentions and less restrictive coverage. We expect this positive trend to continue – giving us greater potential for options on forthcoming renewals and greater latitude for our clients.
Logistics & Infrastructure
Clients in the Logistics and Infrastructure sectors continue to suffer at the hands of disrupted supply chains, changing consumer patterns and levels of demand. Restrictions to free movement and economic growth caused by COVID-19 and Brexit have also had significant short and longer-term ramifications. The handling of dangerous goods remains of concern to insurers in the wake of the Lebanon port disaster. Similarly, any concession agreements with central governments, which are subject to guarantees, are causing complications for insurers.
As with many industries, Environmental, Social, and Governance (ESG) requirements are firmly in focus. In particular, insurers want to stress test environmental impact. It is now expected that companies demonstrate how they’re going to meet their ESG goals rather than just setting ambitious targets without structured plans in place to achieve them.
“Over the past 12 months, we’ve seen prices and the demand for commodities increase once more.”
Natural Resources
The pandemic boosted the prices of many commodities due to COVID-19 enforced shutdowns, labour shortages and geopolitical issues restricting supply. Over the past 12 months, we’ve seen prices and the demand for commodities increase once more. This is a welcome relief for many companies active in the Natural Resources sector (as well as their D&O insurers), as results and outlooks begin to improve on the post-pandemic road to recovery. Despite this, the marketplace for risks in this sector is becoming increasingly challenging. The ESG targets and guidelines set by Lloyd’s and many insurers have restricted certain companies from accessing the full spectrum of insurers (most notably coal, nuclear and oil and gas companies). For example, Lloyd’s mandated that the syndicates write no new coal-exposed risks from the start of 2022. And we noticed that many syndicates were reluctant to write such risks in 2021 as well. This reduced supply of insurance capacity has driven up D&O rates for clients in this area of the sector. It’s also a trend that we expect to continue as agreements reached at the 2021 United Nations.
Climate Change Conference (COP26) accelerate the shift in demand from fossil fuels to cleaner energy sources. Russia’s invasion of Ukraine and the West’s movement away from Russian sourced energy and resources have introduced a further dynamic into the market. The scramble for alternative energy sources is a good opportunity for companies without Russian assets, as well as for the prospects of a quicker transition to greener energy sources.
Those clients with people or assets in or related to Russia, Belarus and/or Ukraine – and not just companies in the Natural Resources sector – are finding that insurers are closely assessing the impact of sanctions and their exposures. This has led to restrictions in cover being implemented in some cases.
Retail & Hospitality
As the world and businesses emerge from COVID-19, retail and hospitality companies are starting to experience big reductions on premiums and less restrictive coverage. This is a deviation from the otherwise challenging market conditions of the last two years. Retail and Hospitality companies that were less than a year ago feeling the effects of a hard market are now experiencing premium reductions that are trending toward pre- COVID-19 levels.
Enterprises such as hotels, restaurants and travel agencies with strong finances and a favourable outlook are enjoying big reductions on their premiums. Something we expect to see continue through Q2 and the rest of the year. New entrants and more inclusive carrier appetites have stimulated price reductions even further. While some hospitality companies might not experience the same kind of reductions as others, most should expect improvement in their D&O programmes from either a pricing or coverage perspective.
“A collective desire for less volatile and moreundervalued investments has led to reduced appetite from investors and a stale marketplace.”
Technology
Technology companies – particularly publicly traded US firms – have endured the repercussions of D&O claims for quite some time and continue to be one of the most frequently exposed sectors to litigation. High levels of global inflation and changing consumer patterns have negatively affected the performance of technology companies, their prospects and share prices.
A collective desire for less volatile and more undervalued investments has led to reduced appetite from investors and a stale marketplace, with limited capital raising apparent within the sector. The hardening D&O market has seen many technology clients face challenging renewals, as insurers seek to manage their capacity and push significant rate increases.
Even though technology companies continue to be viewed as being on the higher end of the risk spectrum (unlike in 2020 and 2021), insurers are increasingly more willing to offer attractive coverage and pricing. We expect this trend to continue for the rest of 2022.
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David Ritchie
Managing Director, Financial & Professional Risks, Gallagher Specialty