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Risk in Context

Financial and Professional Insurance Outlook: Rates Decrease, Uncertainty Increases

Posted by Greg Spore March 02, 2017

Directors and officers may be able to breathe a sigh of relief when it comes to insurance rates, but there’s plenty to look out for this year.

Directors and officers (D&O) liability insurance rates in the fourth quarter of 2016 decreased for the eighth consecutive quarter, and many organizations saw underwriters incrementally expand coverage enhancements. Barring unforeseen circumstances, favorable conditions are expected to continue at least through the first half of 2017.

Despite the favorable insurance results, organizations should monitor continuing trends such as:

Increasing Litigation

A record number of securities class-action lawsuits were filed in 2016, according to NERA Economic Consulting’s Trends in Securities Class Action Litigation: 2016 Full-Year Review report. The growth in filings is attributed to the number of federal court merger objection lawsuits, which more than doubled from the previous year. Traditional securities suit filings increased 23% in 2016. Also, the average securities class-action settlement in 2016 was $72 million, more than 35% greater than the 2015 inflation-adjusted average of $53 million.

Regulatory Uncertainty

Although we don’t know all of their future regulatory plans, the new presidential administration and the Republican-controlled Congress could significantly reshape the regulatory landscape. Meanwhile, the appointment of Jeff Sessions as attorney general and the pending appointment of a new US Securities and Exchange Commission chair will likely affect enforcement priorities.

Cyber D&O

Despite a favorable buyer’s market for cyber liability insurance, cyber risks remain a top boardroom concern.  Nearly 70% of participants in an online poll during Marsh’s The New Reality of Risk® webcast on insurance market trends said their organizations have considered the potential liability to directors and officers stemming from a data breach.

Although several high-profile data security-related D&O lawsuits have been quickly dismissed, plaintiffs’ lawyers are creative and continue to experiment. As a result, we will likely see further cybersecurity-related D&O lawsuits in 2017.

Managing Risks

As you watch these and other insurance and risk trends in 2017, it’s important that you work with your insurance advisors to:

  • Go to market early. Good outcomes start with solid planning — and the sooner you make your submission to insurers, the more time they’ll have to review and discuss it with their management.
  • Differentiate your risk. Telling your story to underwriters in person can contribute to better renewal outcomes.
  • Treat cyber as a risk that should be managed. Cyber must be treated as an operational and enterprise risk that affects everyone — and not simply as a problem left to the IT department to solve.

For more on this topic, listen to a replay of Marsh’s The New Reality of Risk® webcast.

Greg Spore