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How much does D&O insurance cost?

Although the cost of US directors and officers liability (D&O) insurance continues to rise for nearly all public company buyers, the pace of change slowed considerably in the third quarter of 2021. In recent months, the market has become more dynamic, fueled by greater competition from existing insurers and new market entrants. Pricing pressure, meanwhile, is continuing in other markets, including private and nonprofit D&O and fiduciary liability.

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What’s happening in the D&O and fiduciary insurance markets?

Pricing changes for D&O insurance purchased by public companies is decelerating, a trend that is expected to continue in the fourth quarter of 2021.

Risk professionals and senior leaders will be challenged to continue to differentiate their risk and prepare for a higher level of scrutiny during upcoming renewals.

Although price increases have begun to slow, private company and nonprofit D&O buyers continue to face challenging renewals.

Insurance buyers should prepare to show insurers full audited and interim unaudited financial statements, ownership “cap” tables, and details about debt coming due in the next 18 months.

Recent fiduciary liability pricing increases have been driven by an uptick in “excessive fee” litigation.

Underwriters now expect that insureds have certain controls in place to manage fiduciary liability risks, including issuing requests for proposals from prospective service providers.

D&O price increases leveling off

The D&O insurance market has been challenging since the second half of 2018, with D&O pricing consistently increasing year-over-year since that time. Underwriters have taken the position that the premiums they have collected in recent years have been insufficient relative to the uptick in shareholder class-action activity for public companies and resulting claims payments.

The tide, however, appears to be turning.

In the third quarter of 2021, total program pricing for public companies increased, on average, by 8% — lower than the 12.5% increase seen in the second quarter and far less than the greater than 30% increases buyers saw in each quarter in 2020. Primary pricing increases similarly slowed to 9% in the third quarter, down from 14.9% in the second quarter.

As competition returns, US D&O price increases slow significantly.

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