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What Should You Be Asking about D&O Insurance?

A hardening directors and officers (D&O) insurance market has put risk managers in a difficult position. In the current market, buyers looking to renew coverage can expect to encounter rising rates, higher retentions, reduced capacity, restricted terms & conditions, and increased underwriter scrutiny. New capacity is just starting to make its way into the market, but higher pricing generally will likely stay in play through the balance of 2021, at least.[1]

Among the factors shaping the current D&O landscape is the number of federal securities class action lawsuits, which have made insurers scrutinize insureds more closely. While the number declined in 2020 to 324, a record 402 cases were filed in 2019. Other factors have also become top of mind for D&O insurers, including environmental, social, and governance (ESG) issues; diversity and inclusion pressures; and growing cyber risks.[2]

Knowing this, today’s D&O market can leave risk managers with questions as they seek to take control of their D&O risk in an uncertain environment. Here’s a high level look at some of the topics currently top of mind for many risk managers.  


When should I start preparing for our D&O renewal?

While continuous conversations with brokers and insurance companies are recommended throughout the year, approximately four to five months before renewal, those conversations should begin to focus on specific details of the renewal. D&O buyers rethinking access to capital via alternative insurance structures should begin the detailed process even earlier, around six or seven months before renewal. If an organization is considering forming a captive insurance company, those activities should begin approximately one year before renewal to allow for planning, feasibility studies and regulatory approvals.


What sort of D&O insurance market research should a buyer conduct prior to renewal?

With the assistance of a broker, the buyer should research the capabilities, claims performance, financial strength, and security ratings of various D&O insurers. Insurers’ financial metrics, underwriting and claims performance are critical characteristics of insurers, can change from year to year, and should be reviewed at every renewal. It’s also important to consider legislative developments that might affect the D&O market. In Quebec, for example, recently passed legislation that would modify existing provincial laws requiring insurers to cover defense costs beyond policy limits could have an impact on the local D&O market. Risk managers should keep up with any legislative changes and understand their possible impact on the D&O market.[3]


What are best practices for the D&O renewal process?

A renewal strategy meeting between the buyer and their broker kicks off the renewal process with a discussion of market conditions and possible changes to the program structure. That discussion should include consideration of what’s important to the buyer: for example, containing premium increases or keeping retentions as low as possible, along with a review of strategic risk goals of the organization. The broker can facilitate any preliminary conversations with lead D&O insurers. The buyer should gather information for underwriters such as financials, organizational details, information on any M&A activity completed or considered, and details on outside directors. It is also recommended that key members of the organization be present during this meeting, including the CEO and CFO. Then it’s time to meet with underwriters. Before completing the renewal, the buyer can work with the broker to review policy contract language for terms and conditions that are best in class.[4]


How might my next renewal differ from previous renewals?

There may be limits on D&O capacity available from incumbent insurers on the program. New carriers, however, are bringing additional capacity into the market, and a good strategy could involve pre-renewal meetings with new players to build relationships in case they’re needed to fill program gaps.


Cyber attacks are all over the news. Are cyber security issues a factor in D&O renewals?

Absolutely. Underwriters are asking more questions about cyber security controls, cyber risk transfer, and event-driven litigation. The current cyber threat landscape is having an impact on the way D&O insurers underwrite. An effective method for risk managers to approach this aspect is to provide clear messaging and examples of how the company is managing and mitigating its cyber exposures and not viewing cyber security as a cost center, but as an integral part of business strategy.  


What impact has the COVID-19 pandemic had on D&O renewals?

Be prepared to answer underwriters’ questions about return-to-work plans and policies, the pandemic’s ongoing impact on the business, and how business is recovering from the pandemic. Answering those questions effectively can provide buyers an opportunity to differentiate themselves from industry peers in the eyes of underwriters.


What factors are D&O underwriters particularly focused on currently?

Pandemic recovery is at the top of their list. Corporate governance, diversity and inclusion, and the environmental element of ESG are also getting a lot of underwriter attention. Underwriters are always interested in the buyer’s financial condition and any plans they might have to raise funds or engage in M&A activity.


What should we do if we’re considering a merger or acquisition?

Start early and work closely with your broker to understand the impact - including the size and scope of -  the acquisition may have on the D&O policy, and how the policy might respond.


How can our business achieve a positive outcome in our D&O renewal?

Start early. Anticipate the issues that might concern underwriters and prepare your narrative to differentiate your organization from other D&O buyers. Understand litigation trends in your industry and make a case for how your organization is mitigating that risk. Maintain continuous communications with your broker about renewal issues such as rates, capacity, and retentions, as well as communications with internal stakeholders. You don’t want the C-suite taken by surprise by rate increases or increased retentions. Be prepared to present hard data on financials and debt to underwriters and provide a detailed look at your risk mitigation efforts. Finally, always make sure the players involved in the underwriting meeting – the risk manager, the treasurer, the CFO, and possibly even the CEO – are absolutely prepared for that meeting. Dress rehearsals are well worth the time and effort.

*The information contained in this document and the statements expressed are of a general nature and are not intended to address the circumstances of any particular entity.


[1] Aon expects rate hardening to continue but says new capital may temper increases

[2] Executive Risk: Reflections on 2020 and Outlook for 2021

[3] The Quebec D&O Market and Defence Outside the Limit

[4] Recommendations for a Successful D&O Underwriter Meeting