The roots of the history of directors’ and officers’ (D&O) insurance run rich, wild and deep. It’s that which sets the market apart according to PIB Insurance Brokers’ D&O stalwart David Walters (pictured), who has served the market since 1985 and seen it through good and tough times alike.
“D&O insurance is always evolving and it’s always contemporaneous,” he said. “If you rewind right the way back to where it began, apocryphally, the first policy was written in Lloyd’s in the 1930s for a UK listed company, albeit with its American exposures in mind. And it was really still in its infancy when I started in the market.
“Everyone used to broker Financial Institutions, PI and E&O policies – and the D&O market was really trying to respond to demand from directors that was predicated on very little case law and an amendment to the Companies Act that took place in 1929.”
Various iterations of the Companies Act impacted the way D&O insurance was viewed in the market before an amendment in 1989 made it explicitly clear that D&O policies were legal. After that, Walters said, there was an explosion of uptake and since then the sector has weathered storms and fair weather alike – buffeted by the winds of industry scandals and changing regulations.
The soft market conditions between 2010 through to around two or three years ago, saw underwriters conducting a lot of business online and moving away from the more stringent underwriting metrics they had used back in the day. Exclusions fell away, he said, and the coverage did improve as it was easier to articulate exactly what was covered without some 20 exclusions providing confusion.
“Of course, as the coverage increased and as regulatory oversight increased and financial uncertainty increased, it [meant] that about three years ago we had a bit of a perfect storm brewing with claims,” he said. “… So, the correction was long overdue but as with all market corrections, it came as a shock to a lot of people.
“And that hard market cycle ran through the worst lockdown experiences of 2020 and the COVID [crisis] and is only really starting to abate now. Depending on who you talk to, they might tell you the market is incredibly competitive again, and I think it’s getting that way… It’s not quite business as before, it will take a while for that to fully float through but we’re seeing some very significant rate reductions now and the market is in a healthier place.”
With a career that has included roles with Marsh, Miller, AIG, and Gallagher before he joined PIB Insurance Brokers – Walters has seen the D&O market from a variety of perspectives, and he understands what it means to generate a genuine value proposition. That’s one of the things that PIB has done remarkably well, he said, as it understands where it fits in the wider financial services world.
It’s that understanding that helps you to transpose clients’ requirements into an insurance market, he said. And it’s something that he has long been very passionate about on the D&O piece – that D&O underwriters are analogous to stakeholders in a client’s business.
“It’s with good reason that following on from various hard market cycles, there has been a drive to insurance market presentations,” he said. “You will find that it may well be the C-suite of any given company who will give presentations to insurers and those presentations will look very similar to those they give to their own shareholders.
“That makes sense because you want the insurers to partner with a client. Because ultimately, if there is an issue, you want your insurers to understand the business and to do what the policy should do - which is respond very quickly and in a proactive way.”
Forming strong relationships with insurers and clients alike is the backbone of PIB’s market offering but Walters emphasised that the key to the role of the broker is also to facilitate the relationship between those two parties. Back in the 80s, it was a different world altogether as it was much more based on face-to-face interactions than it is now, but it did mean underwriters would remember their clients and develop a unique dynamic with them. Understandably, things have moved on, he said, but the methodology still works.
The once-familiar joy of meeting people face-to-face in the insurance marketplace is now being revisited which is a great thing to see, Walters said, and he highlighted that he’s seeing the benefits of that filtering down the insurance value chain. And among the key trends he is spotting when evaluating the D&O space is the presence of more capacity in the market.
“That is going to be inevitable as market rating has been a lot higher over the hard market piece,” he said. “Fresh capacity drives innovation, drives a reduction in rate and it drives competition. So, we are seeing a market that again is starting to respond to requests. The market is opening up on a snapshot of underwriters that are back – Lloyd's is back, underwriters are back in their offices, and there are meetings taking place face-to-face again. And that energy in the market drives an ever-improving piece.”
