Rising Insurance Premiums Inflict Pain, Require Pushback

# Insurance

# Risk Management

D&O prices spike as insurers respond to a surge in claims following a Supreme Court decision.

Rising insurance premiums had treasurers and assistant treasurers at a recent NeuGroup meeting using plenty of colorful language to describe the current market for coverage and the pain some carriers have caused with their initial pricing proposals.

Among the tamer comments, one member said the directors and officers (D&O) market is the “ugliest in years” and that “a lot of frustration” erupted in her department when the first price quotes arrived. She added that she’s seeing increases in “all areas” of coverage and that her company “almost dropped” its primary D&O carrier.

Another treasurer whose company buys insurance in the UK said insurers in that market that had been mispricing D&O coverage have reversed course and are raising premiums.

Sources of pain. Among the reasons for rising D&O premiums, members say insurers are citing an increase in claims and more lawsuits following a 2018 US Supreme Court decision known as Cyan that actuarial consultant Milliman says, “allows 1933 Act lawsuits to proceed in state courts, which eliminates the ability to consolidate cases. This doubles the number of cases and costs to the offending company.” Time-consuming pushback. One treasurer said negotiating lower premiums required repeatedly “going back” to the insurer and that “it took a monumental amount of time to get it down.” Another participant said renewing property insurance “takes months” while a third said his company recently put out an RFP for property coverage.

The insurer for one company wanted to raise its D&O premiums 37% but the treasurer said the actual increase ended up being “much less” after lots of back-and-forth.

Several treasurers said their frustration with price increases partly reflects that their companies have paid millions of dollars in premiums to insurers over the years but have never made a claim—or have made very few—one of the arguments they make in negotiating lower increases.

Some companies are moving away from buying “ABC” coverage for D&O and are just buying side A, which covers D&O liabilities that cannot be indemnified by the company.

Bigger picture. The bleak picture of the commercial insurance market for corporates that emerged at the meeting is consistent with trends captured by the Marsh Global Insurance Market Index:

Global commercial insurance prices rose by 7.8% in the third quarter of 2019, the eighth consecutive quarter of price increases. The third-quarter rise in pricing was the largest year-over-year increase in the index since its inception in 2012.

In the US, financial and professional (FinPro) liability pricing increased by 11%, driven by directors and officers (D&O) pricing. “Factors contributing to the market firming include increased litigation with event-driven lawsuits expanding to areas such as #MeToo, cyber breaches social media and safety,” Marsh said. Cyber insurance pricing increased by nearly 3%.