D&O market is ‘absolutely brutal’ and ‘in a world of pain’ as a result of hard market

Insurance2025: Directors’ and officers’ (D&O) insurance is heavily exposed to the current hard market, with industry commentators describing conditions for this line of business as “absolutely brutal” and “in a world of pain” due to “capacity constriction”.

This topic was discussed at last week’s Insurance2025 virtual conference, hosted by Insurance Times.

In a panel discussion led by content director Saxon East, Simon Collings, managing director of national broking placement at Gallagher, said that market conditions surrounding D&O and professional indemnity (PI) insurance was “exceptionally hard”.

He continued: “Our head of D&O in our specialty team stated that he thought he had 5% of capacity available in 2020 than he had three years prior.

“Any market that has a capacity constriction of that amount is going to be in a world of pain and that was absolutely the case for the D&O market.”

Mike Keating, chief executive of the Managing General Agents’ Association (MGAA) agreed. He added that “most lines are carrying double digit rate increases”.

“The main product lines [affected by the hard market are] financial lines. Professional indemnity and D&O are absolutely brutal and it’s not just a case of rate increases – a hard market also brings restrictions in capacity and a reduction in cover,” he noted.

According to Simon McGinn, general manager of commercial and personal at Allianz UK, his team is seeing the impact of the hard market most in property, however he said this is “much needed and somewhat overdue”.

Collings added: “We’ve been in a very hard cycle for all of 2020. It was toughening before, but the pandemic accelerated that hardening and that was really because we had a restriction in capacity. That’s what was driving the property market.

“You’ve had insurers that were de-risking their book and remediating their property book because it had probably been under-priced for some time.

“When you have that restriction in capacity, that obviously drives price upwards and it allows for restrictions in cover and we were seeing that all the way through 2020, not just on traditionally difficult risks to place, which will be challenging to place in a soft market or a hard market because of the very nature of their exposures. We were seeing that bleeding across into pretty much all forms of insurance.”

Anomaly

The one line that seems to have swerved the detrimental impact of the current hard market, however, is motor – something all three panellists agreed on.

Collings explained: “Motor is the one area across the piece that is highly competitive and we’re seeing our clients be able to get options for their programmes, outside of some very specific niches.

“There are some very competitive insurers in the motor sphere. That is off the back of a very benign claims experience from last year, which was driven by a lack of exposure.

“Last year was an anomaly as far as motor claims are concerned and it’s hard to see, against a backdrop of claims inflation for motor with the costs of repairs going up – especially post-Brexit – where most of the parts have to be imported, it’s hard to see that continuing for any length of time.”

McGinn agreed: “All lines are seeing some rates strengthening. In terms of units per exposure, price is going up. The slight laggard to that would be motor fleet business.

“At the moment, what we’re really seeing there is changes in price because of reductions in exposure and vehicles on the road rather than actual rate per vehicle reducing.”

Future competition

In terms of the insurance market’s direction of travel, Collings predicts that insurers are looking to grow – in turn, this means these businesses will need to be competitive, which could ease hard market conditions.

“We’re starting to see insurers want to grow and the way that insurers grow is by writing new business and to write new business, they’ve got to be competitive, so we are starting to see some quite aggressive targets from insurers,” he said.

“Whilst it’s very early days, that inevitably will start to generate more competition, which will start to see an easing of that tough market conditions because to achieve their targets, they’ll have to be competitive.”

McGinn additionally noted that competition following a hard market is “inevitable”, however he thinks competition between insurers will extend beyond simply focusing on price alone.