Most management & professional liability lines facing tough road
The turbulent market is leading carriers to raise rates, reduce capacity and review accounts more closely.
Hard market conditions for most management and professional liability lines are carrying over from the past year, with the first half of 2021 seeing a slew of corporate bankruptcies, widespread layoffs and cyber breaches, according to Risk Placement Services (RPS).
As a result, insurance carriers in nearly every line of business in this sector are raising premiums and rates, reducing capacity and putting accounts under the microscope, the E&S wholesale broker and managing general agency reported.
“Management and professional liability carriers are more focused than ever on profitability over growth, due to many years of depressed pricing and growing claims and then compounded by the pandemic,” Manny Cho, executive vice president, executive lines for RPS, said in a release. “As a result, public and private company directors & officers (D&O) and cyber liability lines of business are seeing dramatic changes in pricing, terms and conditions. And this trend is expected to continue throughout 2021 and into 2022.”
D&O sector favoring established businesses
Mature companies are starting to see stability in the D&O market, according to RPS. However, for companies that are now going public, the sector continues to be challenging. Growth in special-purpose acquisition corporations (SPAC) to launch IPOs and the use of private investment in public entities brings more complexity to the underwriting process.
“The SPAC market and potential future litigation could cause some major disruption to public company D&O — a line of business that is finally beginning to settle down in certain areas as we see new competition and new capacity for excess layers come into the market,” Cho said. “But that could change in an instant if litigation trends worsen and underwriters continue to focus on profitable results.”
On the private D&O front, underwriters are now more persistent in requiring unaudited financial statements as well as a COVID-19 supplement in most cases, RPS found, noting the goal is to uncover any liquidity issues, which could result in bankruptcies down the line. Further, minimum retentions are growing four- to fivefold, while capacity is being reduced. This is leading organizations to use multiple carriers to reach desired limits.
Additionally, the professional liability sector for insurance agents and brokers is also tightening, RPS reported. The main culprit behind this is the surge in natural disasters and insurers denying coverage for many professional liability claims. As a result, policyholders are filing E&O claims against insurance agents.
To transcend these market woes, RPS stated agents and brokers should set expectations upfront with their clients.
“Underwriters are inundated with submissions, so it is critical to provide them with complete and thorough information to best position your clients to secure more favorable prices and terms under these challenging market conditions,” Cho said.
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