Briefing: D&O pricing may come down to a question of commitment

By Jon Guy

As risk managers, brokers and insurers gathered in Manchester for the annual Airmic conference this week (19-21 June 2023), UK businesses will have been glad to hear of the downward trend in directors and officers (D&O) premium rates.

Recent renewals have seen sizable reductions in premiums in this line, with some companies having seen two or three renewals at which prices have halved.

Broker Gallagher recently issued its D&O Global Market Update report, which found rates were continuing to fall driven by a competitive sector.

It concluded that recent turmoil in the banking sector and a lack of funding options have left many clients facing an uncertain short-term future, even though D&O insurance rates continue to be favourable.

Thanks to this, companies have been able to save money, build back limits and introduce previously prohibitively expensive ancillary lines, such as Employment Practices Liability (EPL), Pension Trustees Liability (PTL) and crime insurance.

However, some significant questions remain.

Despite the softening Gallagher executive director Steve Bear said the rates were still far above the pre-pandemic level.

Craving consistency

He explained he had seen risks which had been priced at £16,000 pre-pandemic now priced at £60,000, despite the rate reductions.

“I have spoken to underwriters who are concerned rates are falling too sharply,” he explained. “However, I pointed out the premiums that are being charged are still well above pre-pandemic rates.

“The question we have to answer is whether £60,000 is to new market price, or whether the new consistent price will be a sum between £60,000 and £16,000.”

Companies are keen for greater consistency, added Bear.

“If we were to speak to CFOs or finance directors and asked them if they would want a set price for the next ten years the vast majority would bite our hands off,” he said.

“They tell us that the price is not the real issue, it is the desire for stability in the price so they are better able to budget for the expenditure. They want an end to pricing volatility and the effect it has on their financial planning.

“The question is, if we approach the underwriter to say, barring a major change in risk or claims history, would they commit to a set premium for 10 years at a sustainable rate, would they be willing to do so?”

D&O has been a class of business which has demonstrated, and continues to suffer from, volatility.

At present the trend in pricing is downward, but it will be interesting to see if there are some insurers that would be willing to commit to a long-term pricing plan on the expectation that there is some way to go before pricing hits the floor.