The D&O market is rapidly changing; risk managers should still take control of their D&O risk by getting an early start on renewals. Here’s why:
The current directors and officers (D&O) insurance market is significantly improving as new capacity enters the market. D&O insurers, after more than two years of market increases, have addressed their book deficits. Pricing is meaningfully improving – significant decreases are available with a strategic marketing approach.
D&O insurance buyers should take advantage of the market improvements and take control of their risk by getting an early start on renewals. An early start can give the risk manager buyer more control over the D&O market and address potential bumps in the road.
An early start can include two phases:
Consideration of the specifics of the renewal: new capacity entrants – meeting with and performing some pre-marketing to determine potential for new capacity interest, the potential need for replacing specific insurers on the program or whether the organization may need to increase its limits.
Checking in with incumbent insurers early, perhaps at the midyear mark, to strengthen relationships, gauge their ongoing interest in the buyer’s program and educate them on any changes to the organization’s risk profile or business strategy since the last renewal.
In each case, it’s wise to partner with your broker on an early kickoff for renewal. Ultimately, an early start sets the stage for a coordinated and thoughtful approach to the D&O renewal process.
A Competitive and Softening Market is Emerging
Current market conditions are evolving and improving, prompting clear communication with insurers for the best results. An increased emphasis on telling the company’s story in the insurance market, particularly if it’s necessary to replace or attempt to add new capacity is also important.
Early meetings with incumbent markets can be an important part of that communications process, strengthening the relationship between buyer and insurer and helping the buyer recognize changes in the market that will shape the ultimate renewal strategy. Approximately six months before renewals might be a good time to introduce the business to other insurers not yet on the D&O program.
In the current market, staying with the incumbent insurer might be advantageous, although new capacity is making its way into the market. But early conversations will reveal the incumbent’s plan and whether the buyer can rely on that capacity. If not, the knowledge of a need to find new capacity will help the buyer craft a renewal strategy. An early start to the renewal process can also give the buyer’s broker the maximum opportunity to explore all possible market options for securing coverage.
Risk managers should also communicate early with their organization’s leadership about market conditions. Those conversations can set leaders’ expectations for renewal, allow the risk manager to explain objectives and the implications of program changes, and provide an opportunity to explore possible solutions.
During the hard market, some buyers were forced to rethink their D&O program’s structure by employing alternative risk financing arrangements, such as using a captive insurance company to take on Sides B and C risks while turning to traditional markets for Side A coverage. Such a move involves planning and takes time, so an early start is essential in crafting and executing that strategy. Starting early continues to allow for discover of some of these creative alternatives.
Buyers might want to consider taking early meetings with the new markets and underwriters that are appearing. Those meetings can provide a chance to understand the new insurers’ underwriting strategies and how they might fit with the insureds’ needs, and for the buyer to tell the company’s story in preparation for the potential of the carrier playing a significant role in the renewal.
As they talk to underwriters, buyers should be prepared to address some of the key risk themes insurers are considering, such as environmental, social and governance initiatives, which includes diversity and inclusion matters.
Insurers will also want to know about any significant events that have affected the company over the past 12 months, including changes to the company’s balance sheet, market capitalization, board members, top executives or strategy.
The Pandemic’s Impact on Renewals and Preparation
On a positive note, the pandemic has introduced some efficiencies in the D&O renewal process. While face-to-face meetings are valuable, the virtual meetings forced by the pandemic have made it easier to meet with additional decision makers at multiple insurance companies. Eliminating the time commitment associated with traveling to underwriting meetings has provided an advantage in the form of greater access to underwriters and senior decision makers.
The virtual environment has also made it easier to connect the buyer’s senior leadership with underwriters to tell the buyer’s story more effectively, which can be an advantage at renewals.
Preparation for those underwriting meetings is critical and it can take time to craft presentations and coordinate who will present. Because buyers will likely have only one underwriting meeting with each insurer, the presentation has to be its best. Adequate preparation will allow the buyer to present the organization to underwriters in a favorable light, differentiating the company’s risk from others competing for D&O capacity.
The benefits of starting early on D&O renewals far outweigh any potential downsides. An early start can allow a buyer to approach the renewal in a thoughtful manner, crafting a best-in-class renewal strategy to maximize the chances for a successful renewal.