Insuring against litigation arising from bankruptcy remains the core business for D&O providers, and with sectors such as travel, leisure, hospitality and traditional retail under enormous pressure, pay-out areas are likely to grow.
In the new normal of the Covid-19 pandemic, insurers are upping their premiums to cover the legal liabilities of company directors and officers. The average cost of D&O insurance rose 60% for US companies in the second quarter of this year, according to insurance brokerage Marsh, while in the UK it more than doubled.
That follows a sharp rise in premiums earlier in the year. Industry services provider AM Best found that rates for directors and senior corporate officers jumped by 44% in the US during the first quarter, and it expects the market to “undergo radical changes” on account of the “unprecedented turbulence” wrought by Covid, with further price increases continuing through next year.
“We can expect triple-digit increases in a post-Covid world,” says Best’s latest market sector report, “as insurers respond to legacy issues such as increased litigation, litigation financing and keeping up with emerging claims and litigation due to Covid-19.” Even before the pandemic struck, many D&O insurers “were already reviewing their underwriting, identifying profitable niches and increasing prices to address deteriorating results.”
Insuring against litigation arising from bankruptcy remains the core business for D&O providers, and with sectors such as travel, leisure, hospitality and traditional retail under enormous pressure, pay-out areas are likely to grow. But insurers say they’ve also observed a surge in securities class-action litigation arising from other causes, including cybersecurity breaches and failures of corporate culture. And further claims could arise over company responses to the pandemic, including misleading Covid-linked disclosures and government investigations into corporate applications for pandemic relief.
The added complexity of litigation over specifically Covid-related claims—and the likelihood that such cases will test the wording of insurance policies—is likely to cause a long tail of settlements into 2021 and beyond.