While the world will always remember 2020 as a challenging year for people, the economy, and businesses, 2021 is not likely to be too much easier for public company directors and officers. As organizations and senior leaders finish their plans for 2021, managing directors and officers insurance (D&O) programs and related industry risks are crucial.
Here are some D&O coverage trends that company leaders—no matter their industry—should watch closely.
Challenges Persist in the Greater Insurance Market
As 2021 begins, the global commercial insurance market remains challenging, especially for buyers in the United States looking into D&O insurance. D&O pricing for publicly traded companies rose more than 50 percent. D&O capacity challenges are not just taking place in the United States, however, as everywhere from the United Kingdom to Germany have felt the hardening market's effects.
Non-U.S. companies that have historically been able to secure D&O insurance from insurers in London are now hoping other markets, such as the United States, can help revive capacity. Amid these hurdles, companies are often forced to make hard choices like reducing their coverage limits and taking on more risk. This is true in other insurance markets, such as general liability, Mortgage Broker Insurance, and life insurance policies.
Companies are more focused on potential alternative risk transfer solutions where capacity is lacking, or pricing is too glaring. Although some new entrants in the market should increase supply and steady pricing increases over time, it will take some time before their impact is noticeable.
Derivative Litigation in 2021
While the COVID-19 pandemic has had some effect on the D&O coverage market, there are several reasons why insurance prices are increasing, most notably in securities litigation. A progressively large share of these lawsuits is derivative actions filed on behalf of a company against executives who may have taken advantage of their power in the company.
Many recent actions are event-driven suits, alleging that D&O officials failed to adequately respond to trends, such as the #MeToo movement and its stance on sexual harassment in the workplace or the rise of cyberattacks in the wake of COVID-19.
In addition to the rising frequency of suits and allegations, derivative lawsuits are more costly. While plaintiffs have settled for attorneys' fees and governance changes at a company, they are now looking for more money from damages.
A New Emphasis on Diversity
Public companies have been targeted in securities lawsuits demanding that boards become more diverse. From shareholder action lawsuits alleging that directors and officers have breached their fiduciary duties to the lack of people of color and women in charge, diversity has become even more of a hot-button issue.
On December 1st of last year, Nasdaq filed a proposal with the Securities and Exchange Commission to require most Nasdaq-listed companies to have at least one director who identifies as either an under-represented minority or LGBTQ+ and one female director. Compliance with these new diversity rules would be required within two to five years of the new listing rule's approval.
As states, exchanges, and shareholders continue to lean on the issue of diversity, insurers are starting to take notice. Underwriters are asking more detailed questions about board composition during renewal processes, which is a trend that is likely to carry on.
About Axis Insurance Services, LLC
At Axis Insurance Services, LLC, we aim to help our customers identify their exposures and protect themselves. Founded in 1999, we offer insurance programs to a wide variety of professionals and industries including attorneys, real estate, healthcare, architects, and more, and also have a wholesale division. We pride ourselves on offering flexible insurance coverage tailored specifically to each customer’s needs. To learn more about our solutions, contact us at (877) 787-5258 to speak with one of our professionals.
