The report showed that whilst D&O rates are rising in many countries, this is not the case everywhere. In a few markets, the green shoots of recovery are showing as clients reach the limits of what they are prepared to pay, and prices look set to finally stabilise. 

According to Sparke Helmore partner Dino Liistro, Australia is one of the countries where the price limit has been reached.

“The recent experience of underwriters had been that insureds were prepared to increase their spend. The limit may have been reached,” he said.

“Over the last year, insureds began maintaining the same legal spend in the face of rising premiums by increasing excesses or reducing limits of cover and in some cases looking to other risk management solutions to bridge the gap.”

The report also noted other tumultuous global events beyond pricing are impacting D&O, which equals the need for “an increased need for protection for directors and officers, in a market which lacks capacity to supply it”.

“The global shocks of the pandemic have brought corporate turmoil, fuelling a huge spike in corporate M&A as the weak are bought by the strong, and the well-positioned take advantage of changing markets to expand into new regions through acquisitions. This in itself brings great pressure to bear on directors and officers across the board; meanwhile, alongside, many companies are also seeing exposure to new risks brought about by home-working and other pandemic impacts,” the report stated.

“Finally, the increase in cyber attacks is driving growth in litigation by those affected, and in many cases, the litigant will also name directors and officers within any class action, also increasing the perils for elected company officers. Regulation is a further factor in the mix.”

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These issues add up to the increased need for protection for directors and officers, driving up the demand for cover. The report found that while emerging markets, in particular, have a growing appetite for D&O, there is a lack of capacity in many of these markets, with only a small number of insurers operating in the region. European markets also have capacity for growth, with some smaller economies showing an upward trend in demand.

For Australia, the COVID-19 pandemic appears to have created a volatile and uncertain environment for businesses in a strained D&O insurance market.  It is anticipated, however, that the market will stabilise and soften over the next two years. This optimism is attributed to (now past) increases in premiums together with an apparent slowing of certain types of claims, namely, securities-related litigation, Mr Liistro noted.

“There has been a decline in securities and insolvency-related investigations and claims over the past 12 months. Early in the pandemic, legislative changes were made in the area of insolvency, and other legislative changes and government support assisted companies. 

“Perhaps because of these actions, there has been a decline in corporate insolvencies from pre-pandemic levels, and consequently a decline in insolvency-related claims against company directors to now. In the event of insolvencies increasing in the future, of course, we may again see a rise in insolvency-related claims,” he added.

“Also related to the pandemic, underwriters anticipate further claims in the employment practices liability space – around changing conditions in workplaces – and in respect of policies with an element of crime cover.”