Are we heading into a hard market in commercial insurance?
We don’t believe that the broader commercial insurance market is there yet, however, it does seem to be hardening in certain areas, one of which includes Directors & Officers Insurance.
Now more than ever, clients need answers and advice on their D&O Insurance program. Traditionally, over the past decade, D&O Insurance has been relatively easy to purchase with competitive premiums, high policy limits and additional policy extensions in abundance. In contrast, insurers are now experiencing a higher frequency of claims which has resulted in a hard-line approach on their renewals with a “take it over leave it”mentality in many cases.
In the current D&O Insurance environment, we’re seeing insurers making several adjustments which seek to limit coverage in a number of ways. Some of these changes include; adding an Insolvency Exclusion, Removal of the Discovery provision and adding a Capital Raising Threshold to the renewal. Every one of these new“endorsements” need to be explained to the client, as they have a significant impact on the policy. A common question needs to be asked: Are these changes justifiable for the Renewal?
The insurance broker’s job is to explain these changes and answer questions, with an overall strategy in place for the insurance renewal now and moving forward. If there are no alternative options for the renewal because the other insurers are not satisfied with the risk, then the client should be looking for answers on when and how the policy can be improved in the future. Insurers will agree to future changes subject to certain milestones (eg. Future capital raising), but they are unlikely to agree without negotiation. This is an important part of the broker’s job—when it comes to technical and customized insurance– if you do not ask, you will likely not receive.
As insurers tighten up their appetite for risk, clients need to have a better understanding of what they are buying so they can make an informed decision whether they are buying the policy for the first time, renewing a policy and most importantly when managing a claim.