D&O Market Insights: Past, Present, and Future Trends

31 Oct, 2023

D&O Market Insights: Past, Present, and Future Trends

While the COVID-19 pandemic may be receding, its lasting impact continues to reverberate within the D&O insurance sector.

Before the pandemic's onset, the D&O insurance market was generally considered client-friendly, but it was already showing signs of hardening. During COVID-19, the market shifted fully into a hard market, and following the pandemic, it transitioned to a soft market.

The pandemic expedited the tightening of the D&O insurance market, posing challenges for both public and private organizations. Rates increased, while capacity decreased across various classes. Underwriters, responding to heightened uncertainty, demanded more detailed information about the financial health of organizations, often requiring higher retentions and imposing exclusions. This created a challenging environment for brokers and insured parties alike.

However, it's worth noting that the pandemic did not result in the expected surge in claims activity. While the D&O space shifted to a hard market due to increased risk, particularly during the pandemic's uncertainty, the spike in claims didn't materialize as feared.

In fact, the number of new securities class action lawsuits filed in Canadian courts has decreased in recent years. The decline, from around 15 cases in both 2019 and 2020 to 10 in 2021 and eight in 2022, has contributed to a decline in rates within the publicly traded space.

As the D&O insurance market emerges from the pandemic era, capacity is gradually returning, especially from London markets, which is helping to drive down premiums. Nevertheless, the market still faces challenges, including environmental, social, and governance (ESG) issues, geopolitical and socio-economic changes, emerging risks from technologies like AI, ongoing supply chain issues, and the persistent presence of COVID.

Looking ahead, it is expected that prices will begin to stabilize, although they may not reach pre-pandemic levels anytime soon. The market will also likely see new types of companies seeking D&O policies, such as those involved in the cannabis industry, with some insurers remaining cautious due to heightened risks. Additionally, risks associated with the collapse of financial institutions like Silicon Valley Bank and the litigious M&A environment are factors that will influence the future of the D&O market.

In conclusion, the D&O market is expected to gradually stabilize, but it will continue to evolve in response to new and emerging risks. Insurers, brokers, and insured parties will need to adapt to the changing landscape and ongoing uncertainties, including those related to COVID.