Looking Ahead to 2023: A Guide for D&O Insurance Renewals [Report]

Woodruff Sawyer’s 10th annual D&O Looking Ahead Guide is here. In it, you will find expert insights to help guide your 2023 directors and officers (D&O) liability insurance program renewal. Read on for a summary of the report, and get more details when you access the D&O Looking Ahead Guide below. For a deeper dive, join us on Wednesday, September 28, at 10am PT for our Looking Ahead webinar featuring additional commentary from our D&O experts.

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D&O Insurance Pricing Trends

The year 2022 has brought some welcome changes for many companies in the area of D&O insurance. In last year’s D&O Looking Ahead Guide, we were encouraged by early signs of pricing relief on the horizon. In 2022, we have been delighted by the speed with which the D&O pricing environment has changed.

During the first half of 2022, pricing trends completely flipped from where they were in the second half of 2021. Sixty-nine percent of Woodruff Sawyer clients in the first half of 2022 experienced a decrease in their premiums—a significant shift from the 70% of clients who experienced an increase in premiums in the second half of 2021.

This shift was most dramatic for IPO, life science, and technology companies—the companies that were hit hardest by the upward D&O insurance pricing trends of years past.

New public companies were among those hit hardest by D&O insurance pricing in recent years, mostly due to the trend of Section 11 cases being filed in both state and federal court after the US Supreme Court’s 2018 Cyan decision.

After the Delaware Supreme Court decision in 2020 in Sciabacucchi, many companies successfully adopted federal forum provisions, which pushed IPO-related litigation back into federal court.

This has driven the cost of IPO-related litigation down, and consequently has also driven down the cost of D&O insurance for IPOs, though they still typically pay more than their mature public company counterparts.

Another reason we are seeing better pricing is the fact that new insurers have entered the D&O marketplace. The competition provided by these new entrants has caused leading carriers to reduce premiums to retain clients.

To be sure, when these new insurers entered the market, they assumed that the pace of new public company business would continue; however, the decrease in IPOs and SPACs in 2022 forced both incumbents and new entrants to compete almost exclusively on renewal business.

So, how is this impacting rates? We have seen drastic improvements in D&O premiums in 2022. So far in 2022, the median increase was just 8%. This is a far cry from the last three years, where median increases were 31% in 2019, 38% in 2020, and 14% in 2021.

Not all companies are seeing as big of a drop in their premiums as some others (like IPOs, life sciences, and technology). In fact, mature public companies and lower-risk-profile companies experienced less of a premium decrease. Having said that, it’s worth observing that their premiums never reached the nosebleed heights of their riskier counterparts.

In more good news, there are now opportunities to lower self-insured retentions (like a deductible) for D&O insurance programs for the first time in several years.

In the first half of 2022, only 5% of clients experienced an increase in their self-insured retentions, while 26% of companies saw a decrease in their retentions. The remaining 69% stayed flat.

Of course, D&O insurance underwriters still have their concerns. While securities class actions are finally downward trending for the foreseeable future, settlements have been high.

In the first half of 2022, there were 48 settlements for an aggregate total of $1.4 billion in payouts. This is much higher than the 10-year average or median. Plus, many cases remain to be settled—476 to be exact, according to Woodruff Sawyer’s analysis.

This matters because of the strong and positive correlation between the time it takes for a case to settle and settlement amounts—a problem for D&O insurance underwriters.

It’s not just the trend of higher settlements that concerns underwriters. Additional risks such as global uncertainty, inflation, a volatile stock market, and more, mean D&O insurance underwriters will prefer to put their capital behind companies that can demonstrate resilience and strong corporate governance.

Despite all this, the results of our Underwriters Weigh In™ survey showed that fewer underwriters than last year believe that D&O risk is increasing; however, the majority still think risk is increasing.

Learn More

Gain access to more insights by downloading the Guide and/or attending our upcoming webinar. The 2023 edition of the D&O Looking Ahead Guide covers all the topics in this article in more detail, plus:

• D&O pricing trends from the Council of Insurance Agents & Brokers (CIAB)
• Hot topics that directors and officers need to know about special purpose acquisition companies (SPACs); environmental, social, and corporate governance (ESG); international companies; and much more
• The results of our annual Underwriters Weigh-In™ survey, where we hear insights from D&O insurance underwriters on the current risk environment, risk appetite, and future pricing expectations.

Get instant access to the full interactive Guide below or download the PDF.