For decades, D&O insurance was seen as a relatively stable and popular class of cover, and discounting was common. But from 2018 onward, stress was obvious in D&O pricing and 2019-2020 became notorious for cost increases. The smaller markets of Latin America suffered just as badly as the US and Europe, while in Asia, markets such as China, which were growing, also began to see increased claims and price rises.

While COVID has accelerated D&O price rises, it is not the main cause for the hardening market. The real reason for rising premiums has been a gradual appreciation that there is a greater D&O risk in corporate mismanagement and financial misrepresentation, together with a widening exposure to new risks such as cyber, environmental and employment issues.

Many of our network members from around the world recently reported that the ceiling in pricing has been reached in the D&O market. Corporates cannot, or will not, pay any more for D&O cover, and as a result, some interesting trends have begun to bubble along in this class.

One alternative is the trend towards self-insuring. First seen in 2019 when Elon Musk was unable to insure his Tesla directors and officers, and as a result, personally funded his company’s corporate D&O cover, the trend is gaining traction.

There is certainly no short-term fix on the horizon for D&O insurance, and currently the market remains dysfunctional. New entrants are also shaking up the market to the benefit of buyers. In the UK there are early, tentative signs that market conditions may be starting to soften, as a number of insurers have spotted an opportunity to enter the marketplace, drawn to the level of premiums that they can currently command.

If this is true and new capacity does come onstream, it may be that prices stabilise and correct in the coming 18 months. However, without any prospect of major issues, such as environmental and cyber concerns, going away, it still seems likely that many corporates will need to consider reducing the breadth of their cover, insuring cyber risk separately, or even undertaking an element of self-insurance to get the protection that their directors and officers need.

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