During 2023, the directors and officers (D&O) insurance market remains a complex and challenging space. London-headquartered speciality insurer and reinsurer IQUW says, so far in 2023, the number of class actions lawsuits that eased off during the COVID-19 years is back up in both the US and Australia. The firm also says D&O is seeing an ongoing trend of “significant rate reductions.”
Despite these challenges, IQUW recently launched an offering with bespoke wordings for the Australian D&O market to make it easier for Australia to transact with London. Elisabeth Groehe (pictured above), the firm’s underwriter for professional lines, said in the past few years, the London market has seen an influx of business from Down Under. Thirty per cent (30%) of IQUW’s commercial D&O book, she said, is from Australian domiciled and listed business.
“While some primaries have been placed on an international form, we felt that until now there was no bespoke solution for our clients,” said Groehe. “The answer was to create a bespoke Australian primary form out of the London Market.”
She said in January her firm was the first market in London to launch a bespoke proposition for clients and broking partners in Australia. Groehe said the new wording in their D&O Protection Plus offering provides broad cover and is simply worded.
“Compared to an all-encompassing international form, we have used bespoke language and coverage for the Australian market,” she said. “We have included as standard coverage enhancements and extensions to provide additional support in recognition of the current litigation landscape.”
However, the D&O market globally, Groehe said is seeing “stark reductions in rates” combined with some insurers increasing line size to make up for lost premium.
“This can be a dangerous game to play,” said Groehe. “It increases volatility within a portfolio with the number of Securities Class Action (SCA) filings in 2023 already outpacing 2021 and 2022 in the USA.”
IQUW, she said, following a full year of steep rate reductions since H2 2022, believes “discipline needs to be restored.”
“Worryingly, the current market is not showing signs of easing,” said Groehe. “The US and London D&O markets have seen a surge of new capacity enter the market due to a buoyant rating environment experienced in the hard market from 2019-2021.”
She said existing carriers have also gone through portfolio remediation and are now seeking to grow their portfolios again.
Groehe said the success of the new entrants depends on how they progress over the next few years and “how that matches the promises they have made to their stakeholders.”
She said, outside the US D&O market, there are “pockets of discipline”, but overall the dynamic is similar with increased competition for business.
“In Australia, we expect the competitive behaviour will continue for the foreseeable future, but it is hard to predict beyond that,” said Groehe. “Overall, there has been a seismic shift in a short space of time but the big question is: is it sustainable?
The IQUW underwriter said Australia’s challenges are two-fold.
“First and foremost we are seeing some more aggressive pricing and push for layers to move back to local markets where London has stepped up during the hard market,” she said.
Groehe said the second challenge is increased claims trends. So far in 2023, she said, 24 class actions have been filed in Australia which is close to the total number of 32 filed during 2022.
“We are seeing therefore that securities class actions remain an ongoing if not increasing risk, with emerging risks such as Privacy & Data Breach and ESG related class actions and claims, bringing new challenges to our insureds, continuing high inflation and increasing interest rates.
In a recent blogpost, Groehe and Gary Lill, IQUW’s head of professional lines, explored what they called the Sisyphean challenges of the D&O market. The term Sisyphean describes a task that is impossible to complete.
“There is more than a passing resemblance of the D&O insurance market of the past four years to the Greek myth in which Sisyphus arduously pushes the rock up the hill, and, once achieved, has it roll right back down to the bottom, at which point he has to start again,” said the posting. They said the D&O market was in a “vicious cycle.”
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