What a Hardening Market Means for D&O in 2021

Directors and officers might already have enough on their plate when it comes to navigating through the ongoing pandemic. But in 2021, they’ll have to add one more challenge: directors and officers insurance. The market has become a hardening market in the last few years as movement like the #MeToo movement has only caused an increase in claims. However, the outbreak of COVID-19 has only exacerbated the already hard D&O market, with insurers increasing their pricing and reducing capacity.

This insurance helps insulate directors and officers from claims made against them while serving on a company’s board and protects them if they find themselves on the receiving end of a lawsuit. Overall, D&O insurance is a comprehensive piece of coverage that provides many protections, paying for defense, settlements, and verdict costs on the director’s behalf.

Before COVID-19, directors, officers, and senior executives were already feeling pressure in the middle of a more litigious environment clouded by class-action lawsuits, sexual harassment claims, and other forms of alleged misconduct. Now that the pandemic has upended how we work, possible related claims are expected to be on the rise from an event-driven litigation landscape. Because of the COVID-19 pandemic, virtual work environment, economic downturn, and return to work policies, companies should expect to pay more for their D&O insurance policy as new complex challenges arise. 

A Hard Bargain in a Hard Market

A hard market in the D&O insurance field existed before the pandemic; however, the truth is that the market is only worsening because of it. Many clients are having a tough time navigating an even more challenging insurance landscape in the new year. The insurance market is recurrent, and a hard market happens when premiums increase and capacity decreases.

Essentially, the hard market means it’s a seller’s market. The insurance field has insurance companies driving double-digit premium increases for policy limits, following years of being a buyer’s market, or a soft market, with more capacity to go around. Now, insurance companies want to ensure they recoup costs following a soft market and protect themselves in the likely event that a client is sued and files a claim against their D&O policy.

2021 and Beyond

Company executives need to go into 2021 understanding the possible impacts from COVID-19 on their business and their management decisions regarding the pandemic to recognize how their coverage may experience an impact. Company leaders should be flexible and balance their cost priorities, understand the reality of the overall D&O market, and evaluate their risk tolerance.

Insurance brokers in the industry are encouraging their clients to be more proactive with their renewals in the market, prepare for changes, and understand the market’s flexibility. Companies should prepare for complicated insurance and business decisions between scaling down limits purchased due to cost or purchasing expiring limits at higher premium costs. Budget and cost pressure is more than likely going to be at the top of the priority list in decision-making.

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