As 2024 unfolds, the Directors and Officers (D&O) Insurance market is hitting yet another turning point. After several years of dramatic rate fluctuations, insurers, brokers, and businesses are bracing for what could be a defining year for D&O premiums. With rising litigation risks, emerging industries, and a more competitive marketplace, the question remains: Will the soft market continue, or are we in for another shake-up?
2023: A Year of Stability and Success—But Is It Sustainable?
The D&O Insurance market experienced a favorable underwriting performance in 2023, with the sector seeing its best loss ratio since 2014. Companies and insurers breathed a sigh of relief after a tumultuous 2021 and 2022. However, Fitch Ratings warned that these gains wouldn’t likely hold through 2024, especially as lower premiums and increased litigation strained the sector.
While most companies saw rate relief throughout 2023, some worrying trends emerged. According to Woodruff Sawyer, one of the largest U.S.-based insurance and consulting firms, 97% of its clients experienced premium decreases during the last six months of 2023. Though 83% of its clients continued to see premium relief through the second quarter of 2024, the company said that the market is now “in another state of transition,” signaling a shift in the pace of rate reductions.
2024: A Market in Transition
The D&O Insurance market for 2024 remains soft, but the momentum of declining rates is losing steam. Sectors like life sciences and technology, particularly mid-cap companies ($2 billion to $10 billion market cap), are seeing higher rates. Rising D&O claims from these sectors are further pushing premiums upward.
The first half of 2024 saw 104 securities class action (SCA) lawsuit filings—a 10% jump from 2023. At this pace, 2024 could surpass 200 filings, marking the first time that threshold has been crossed since 2020. With class action settlements totaling $2.1 billion in just the first half of the year, companies can expect continued pressure on premiums.
One key takeaway is that companies now have a chance to adjust their coverage. Many deferred expanding their D&O programs during the hard market of 2021 and early 2022, but 2024 presents a chance for businesses to reassess risk tolerance and better align coverage limits to their needs.
ESG, AI, and Emerging Risks
Several emerging risks are expected to shape the D&O Insurance marketplace in 2024 and beyond. One of the most impactful developments is the rise of litigation related to Environmental, Social, and Governance (ESG). Anti-ESG legislation in various states has forced insurers to take a more conservative stance on risk, which could drive up premiums. At the same time, companies committed to ESG principles face litigation risks from stakeholders dissatisfied with their compliance efforts.
Artificial intelligence (AI) is another growing concern. While the AI hype may have calmed since its peak in 2023, AI is increasingly embedded in business operations across industries. Whether companies are AI-focused or not, they are vulnerable to risks associated with rogue programs or software failures, making the board’s oversight role more critical than ever.
What to Expect for 2025: New Entrants, More Risk
Looking ahead to 2025, the D&O market will likely remain competitive. Woodruff Sawyer predicts that new insurers will continue to enter the market, offering cost savings as they compete for market share. However, more seasoned carriers are expected to maintain stricter underwriting standards and defend their turf by keeping rates stable.
For companies in high-risk sectors, like tech and biotech, premiums will likely rise as litigation risks increase. Securities class action lawsuits are trending upward, and with more companies returning to the public markets via Initial Public Offerings (IPOs) and Special Purpose Acquisition Companies (SPACs), the overall risk profile for insurers is getting more complicated.
Take Action: Preparing for a Dynamic Market
The coming year presents challenges and opportunities for companies navigating the D&O Insurance market. The soft market conditions are expected to persist, but with a slowdown in premium reductions and rising risks, businesses must stay informed and proactive.
As the market shifts, companies should work closely with brokers to review their D&O Insurance programs, reassess their coverage needs, and take advantage of any cost-saving opportunities before the market hardens again. For Cyber Insurance brokers, staying ahead of these trends is essential to providing clients with the most up-to-date and effective coverage strategies.
Stay Ahead with ProWriters
Cyber Insurance brokers need expertise and foresight to keep up with the evolving D&O Insurance landscape. ProWriters is here to help. Our professionals can guide you through the latest market trends, ensuring your clients are well-prepared for 2024 and beyond.
Contact us today to learn how we can help you secure the best D&O coverage at competitive rates.
