For the second year in a row, the BRP Management Liability Practice, in collaboration with Nasdaq, surveyed over 350 Nasdaq-listed companies about their Director’s & Officer’s liability insurance policy information to garner key insights that can help leaders benchmark and structure their programs. We asked our Management Liability Practice team of experts to weigh in on some key questions. Let’s see what they had to say:
1. What was one major takeaway from the survey results?
The major takeaway from this year’s survey was that rates have dropped steeply since last year. On average, companies saw a 20.3% rate decrease on their primary $5M limit of D&O coverage. The drop was even greater for recent IPOs and DeSPACs, which collectively saw their primary premium drop by almost 28%.
When you factor in the additional reductions that we reported for rates on both excess ABC layers and A-Side only layers, the cumulative rate decrease for the average company’s D&O program was roughly 35%.
2. How does that takeaway differ from last year’s report and how did we get to this place?
Last year’s report was all about rate increases and reporting the historical highs for premiums and retentions, especially for IPO and DeSPAC companies. Starting with the Cyan decision in March 2018 through the COVID-19 pandemic into late 2021, we saw an unprecedented rapid increase in D&O insurance rates and retentions that we don’t believe we will ever see again.
The result we saw in this year’s survey was partially due to unsustainably high premiums, in addition to the surplus capacity we had with many new carriers entering the marketplace seeking to take advantage of the new pricing dynamic.
We believe the current market is in part basic supply and demand economics. When we started in 2022, we had as much D&O capacity (supply) as we have ever had, but the financial markets weren’t favorable for the same number of IPOs, SPACs, and DeSPAC transactions for carriers to deploy that capacity (demand). With so many carriers needing to make budgets and write new business, their focus was targeted on existing public companies, and that aided in the significant decreases most companies saw in their renewals last year.
3. Were we surprised by any of the data?
While it wasn’t surprising to see that rates and retentions dropped steeply based on the factors above, it was surprising to see that companies purchased less limits in 2022. Last year, we reported that despite all-time premium highs, only 10% of companies reduced their limits in 2021. That is a stark contrast to 2022, where despite seeing significant rate decreases, almost 25% of companies also lowered their limits.
There could be several factors that led to these findings, such as companies needing to find a way to further lower their insurance expense, using better data (like this broker-agnostic survey) to properly benchmark their limits. Or perhaps companies now have lower market capitalization after a few volatile stock market years and are buying limits as a smaller company.
4. Beside limits, were there any other data points we were able to capture and report about?
This is an extremely comprehensive report. Not only do we provide guidance about limits, but also about retentions, premiums, changes in various industry and market cap segments, and which main carriers are providing coverage. We touched on limits and premiums earlier, but we saw a significant reduction in retentions across the board as well. Most notable was the drop in retention for recent IPOs and DeSPACs, which were down roughly 40% since last year.
5. Do the survey data indicate which industries were perceived as riskier than others?
If you take a step back and look at the claims landscape over the past 10 years, the top three industries that continue to see the most securities claims are Healthcare, Technology, and Consumer Products. Therefore, it wasn’t a surprise to see that those three industries continue to generate the highest premiums and retentions and tend to pose the greatest concern for carriers.
Additionally, of the companies that have seen a securities class action lawsuit and are below $1B in market cap, almost 25% were IPO related.
6. What differentiates this survey data from others?
The data for this survey comes from over 350 publicly listed Nasdaq companies that utilize various insurance brokers for their D&O insurance programs. Providing both limits and pricing data that are truly independent and not biased or dependent on any one provider’s specific client base is what we believe sets this data apart from what is currently available in the marketplace.
7. Is this objective, third-party benchmarking resource the end-all be-all for Nasdaq companies to help determine appropriate limits?
This survey is a great start to provide public companies with independent data when benchmarking their limits. However, it is equally as important, if not more so, for companies to really understand what the claims landscape and settlement data looks like in both their industry and market cap.
Contact our team for more information about the report and for a full D&O insurance program analysis.
Visit 2023 D&O Benchmarking Report – Insider Insights for more details and data from this year’s survey.
Disclaimer
This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The content of this document is made available on an “as is” basis, without warranty of any kind. Baldwin Risk Partners, LLC (“BRP”), its affiliates, and subsidiaries do not guarantee that this information is, or can be relied on for, compliance with any law or regulation, assurance against preventable losses, or freedom from legal liability. This publication is not intended to be legal, underwriting, or any other type of professional advice. BRP does not guarantee any particular outcome and makes no commitment to update any information herein or remove any items that are no longer accurate or complete. Furthermore, BRP does not assume any liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Persons requiring advice should always consult an independent adviser.
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