As the pandemic drags on, coverage is continuing to change in almost every conceivable area. While this may bring some people a moment of worry, shifts in the market are to be expected — what must be done now is to acknowledge these shifts and prepare accordingly. For this state of the market, we will take a look at the state of Management Liability Coverage to see how the current market trends will impact future coverage.
First, it must again be acknowledged how severely the present COVID-19 pandemic has altered the entire landscape of the insurance market. The full extent of the pandemic’s impact on markets has yet to be fully realised, and even as the vaccine rollout hits an even pace, more considerations need to be made with regards to the continuing supply chain disruptions and new emphasis put on following health and safety protocols. All of these changes will undoubtedly continue to impact markets. Here are some of the ways these changes will affect, and are currently affecting, Management Liability Coverage specifically.
To start, there is still no clear precedent for liability regarding the many new cases that are being, and will potentially be, brought against employers and managers owing to the consequences of the pandemic. Decisions may have been made during the pandemic with inadequate information to justify them, or companies may have adopted policies that did not curb the spread of the virus and its consequences as much as the company had anticipated. There is currently no sign that legislators will be working to protect directors and officers from the potential onslaught of cases that can be brought against them. As far as one can tell given the current information, no relief in this field is currently being planned on a national level, and tort reform is not something being discussed with any seriousness.
Signs are pointing to the idea that underwriters will soon be forced to offer policies with reductions in limits. This will occur in tandem with an increase in retention rates. Motivating this is a heightened scrutiny on the part of the underwriters, as they must work harder to determine the true impact of the pandemic on projections of financial performance as well as the efforts of internal management to handle it. As a 24-month lag on unforeseen claims and unexpected financial impacts has been seen across many varied projections, a continuation of this pattern is probable.
The terms of coverage may also see some restrictions. To give some specific examples, we have already seen the addition of bankruptcy and communicable disease exclusions, and antitrust and debt holder exclusions are also anticipated additions.
Finally, dramatic increases in premiums can be expected — over 50% increases for public companies and rises of 15% to 20% or more for private companies are the currently anticipated increases, but increases may even exceed these projections. D&O/Management Liability carriers have been seen reducing their limits, resulting in insureds requiring additional layers of coverage. It is in these additional areas where the greatest increases have been seen. If industry segments with a perceived higher risk are to be considered, increases will be even more dramatic — certain segments can expect rises of 100% or more in premiums.
These changes are not something that can be solved by more competition, as given its current state, there are scant few new carriers entering the market.
To return to our earlier point, liability is a concern right now because, as previously stated, there is still no precedent for how certain new aspects of the pandemic will be handled. For example, class action lawsuits, especially in areas of heightened risk, could be brought against companies viewed by the claimants as liable owing to their perceived inability to respond quickly and appropriately to the virus. This is making underwriters understandably nervous.
We understand that all of this information may give you more questions than answers. Thankfully, we are there to help. From long before the pandemic’s onset, Conway E&S has been monitoring markets and helping clients like you navigate this new territory. We will work with you to review your renewals to ensure there are no surprises in terms of coverage in the event of a claim, and if you ever have any questions, we will be there to assist you.
For more information please contact Rachel Staph.