Directors and Officers Liability (D&O) Insurance: a watershed year, so where to from here?

Written by Marsh Pty Ltd

Public and private companies – and their directors and officers – face significant business, legal and regulatory exposures with increased risk of claims brought by the likes of shareholders, customers, vendors, competitors, suppliers, regulators and creditors to name a few. D&O insurance is often the last line of defence for a company’s directors and officers when they are accused of wrongdoing in the performance of their management duties.

Average D&O insurance cost increases of over 200%

2020 was a watershed year. Many organisations, including in the retail sector, had to navigate through their toughest D&O insurance renewals in years. Brokers with 40+ years’ industry experience are observing unprecedented rapid D&O rate increases and other changes across the market over the last 12 months.

These changes have prompted many ASX200 companies to re-evaluate the benefits D&O insurance can bring to their organisations. Companies are reviewing their entire risk management strategy, on top of COVID-19 implications, and are exploring alternative and previously untested risk transfer solutions.

D&O Insurance Market Recap from Marsh

Leading insurance broker, Marsh, explored some of the key trends of the last year in their report, Directors and Officers Liability (D&O) Insurance Market Recap 2020.

Here is a preview of the trends and insights shared in the report:

  • SMBs with management liability insurance were also impacted: the impact of securities class action claims have extended to management liability package policies commonly purchased by small to medium-sized businesses, with insurance premium increases of approximately 70-100% throughout 2020.
  • Shareholder class actions and claims remain as key drivers behind D&O hard market: in response, insurers are rebalancing their portfolios by increasing future premiums to compensate for past losses.
  • Lower limits, larger retentions, narrower scope of cover: with unprecedented rises in average D&O insurance cost, policyholders have been prompted to consider changes to their cover including:
    • Removal of securities entity (Side C) cover
    • Removal of company reimbursement (Side B) cover
    • Purchasing Side A cover only (protection for individuals where they are not granted an indemnity from the company)
    • Accepting large increases in retentions (deductibles)
    • Buying significantly lower limits than previous year
    • Accepting restrictions in coverage (for example, new exclusions)
    • For larger companies, exploring non-traditional ways to protect directors and officers, such as the use of protected cell captives
Where to from here? Looking for insurance and risk management solutions tailored to retail?

Given the volatility of the market, it is difficult to say with any level of certainty what pricing and available capacity will look like in 2021.

At this stage, there has been no indication of Australian D&O market conditions easing up or stabilising. As such, it is important for retailers to revisit their key reasons for buying D&O cover and the benefits it brings to the organisation.

For more insights on the D&O markets capacity, appetite, trends and developments, download the full report from Marsh, here.

Looking for insurance and risk management solutions tailored to retail?

ARA Insurance is a unique insurance program for members harnessing the industry experience of the ARA and the risk management expertise of global leading insurance broker, Marsh.

As a member benefit, ARA Insurance members can receive a free 30 minute insurance risk consultation with Marsh. Premium members also receive a complete risk analysis report.

To access this benefit, or for further information, please complete this form and an ARA Insurance representative will contact you to schedule your consultation.

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Note: ARA Insurance, is an arrangement between ARA and Marsh, the world’s leading insurance broker which aims to deliver risk solutions that are designed to meet the unique and evolving needs of ARA members and the Australian retail industry. When arranging insurance solutions for ARA members, the ARA Insurance team at Marsh work with selected insurance providers who cater to the specific risk exposures of the sector. This article contains general information and does not take into account your individual objectives, financial situation or needs. For full details of the terms, conditions and limitations of the covers, refer to the specific policy wordings and/or Product Disclosure Statements available from Marsh Advantage Insurance on request. Marsh Advantage Insurance Pty Ltd (ABN 31 081 358 303, AFSL 238369) arranges the insurance and is not the insurer. The Australian Retailers Association receives a financial benefit when an insurance policy is arranged by Marsh for an ARA member enabling it to continue to provide further services to the retail industry. LCPA 21/133

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