An Allianz report highlights 5 “mega trends” likely to impact boards and officers – and the D&O insurance market – in 2020 (also see the annual Protiviti memo that identifies emerging risk themes involving talent & culture and technology & innovation). The “mega trends” identified in the Allianz report include:
1. Litigation Risks: The report highlights the growing risk of “event driven” litigation – e.g. cyber security breaches, environmental disasters, product problems – as well as continued high levels of securities class actions & shareholder activist suits.
Allianz has seen double-digit growth in the number of claims it has received in the last five years and expects that increased claims activity to continue. According to Cornerstone Research, plaintiffs filed lawsuits in 82% of public mergers valued over $100 million. And event driven litigation often triggers claims under multiple policies – e.g. D&O and cyber.
2. Expectation that Boards Focus on ESG: As Liz wrote recently, D&O underwriters are paying attention to a company’s “social media temperature” as a factor in assessing reputational & brand risks
3. Slowing Economic Growth & Political Uncertainty: Allianz expects to see increased insolvencies, which have been rising for the last 3 years and lead to D&O claims
4. Litigation Funding: This fuels the other mega trends and is forecast to continue growing internationally
What does all this mean for your insurance? Here’s an excerpt from the report’s parting remarks:
According to Aon, D&O rates per million of limit covered were up 17.1% in Q2 2019,compared to the same period in 2018, with the overall price change for primary policies renewing with the same limit and deductible up almost 7%. Primary policies renewing with the same limit were at 93.5% in Q2 2019, but only 70.6% renewed with the same deductible and 66% at the same limit and deductible, suggesting tightening terms and conditions. Still, over 92% of primary policies renewed with the same carrier.
From an insurance-purchasing perspective AGCS sees customers that are unable to purchase the same limits at expiration are also looking to purchase additional Side A only limits and also to use captives or alternative risk transfer (ART) solutions for the entity portion of D&O Insurance (Side C). Higher retentions, co-insurance and captive-use indicate a clear trend of customers considering retaining more risk in current conditions.
-Lynn Jokela, TheCorporateCounsel.net January 13, 2020
