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2022 D&O Insurance Trends: A Looking Ahead Guide

September 20, 2021

/Management Liability/D&O

In Woodruff Sawyer’s ninth-annual D&O Looking Ahead Guide, you can find out what is happening in the D&O insurance market to prepare for your 2022 renewal. For a live briefing, you can attend our webinar on Wednesday, September 29th, at 1 p.m. ET/10 a.m. PT.

D&O insurance rates continued to rise in 2021. However, there are early signs that some relief may be on the way. The results from Woodruff Sawyer’s fifth-annual Underwriters Weigh InTM survey were, for the first time in a long time, a little bit encouraging.

Specifically, only 54% said D&O insurance premiums would go up over the next year. While that is a majority of D&O insurance underwriters, it is still a much better result than what we saw last year when 100% of underwriters predicted rate increases.

Despite some room for optimism, many D&O insurance buyers will continue to face pricing challenges. Here is a brief summary of what we’ve seen in the past year and what may come to pass in 2022. More details are available in our ninth-annual D&O Looking Ahead Guide.

D&O Looking Ahead 2022

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2021 D&O Insurance Renewal Pricing

In 2021, most companies continue to experience increases in total cost and retention on their D&O programs.

However, the rate of these increases seems to be decelerating. While flat premiums and decreased premiums at renewal are still rare, we saw twice as many of these more favorable outcomes as of mid-year 2021 than we saw in all of 2020.

The median total D&O program cost increase for all of our clients regardless of size or industry for 2021 is 26%. This is a high rate, and reflects the fact that the pool of Woodruff Sawyers’ clients is more heavily weighted towards life science, technology, and newly public companies compared to most brokerages. Median Change in Premium Total Program Cost chart showing an increase of 26% in 2021 (mid-year) compared to 38% in 2020.

Brokers placing clients with less challenging risk profiles should, of course, see lower blended rates of increased pricing.

Context matters as well. During 2019, the median change in total D&O insurance program cost was 31% and in 2020 it rose to 38%. This makes the 26% change for the first half of 2021 a welcome change.

Here is the data broken up by industry, market cap, foreign filers, and Side A-only insurance:

While D&O insurance rates continue to increase, the rate of increase is moderating. Increases from 2020 were up 38%, compared to 26% in 2021.

We have more information about what is happening in the current market, including when it comes to excess layers, in the Guide.

DOWNLOAD THE PDF >>

D&O Insurance Marketplace for IPO and Direct Listing Companies

Because of the Supreme Court’s 2018 decision in Cyan, which allowed Section 11 suits to be filed concurrently in federal and state court, the frequency and severity of suits that followed sent shockwaves throughout the D&O insurance marketplace.

In less than two years, the average price of the first $10 million of D&O insurance for an IPO company more than quadrupled, and the average self-insured retention (like a deductible) went from $2.5 million to $10 million or more.

In an effort to avoid concurrent state court litigation, IPO and direct listing companies began to add federal forum provisions to their charter documents. In March 2020, the Delaware Supreme Court said those provisions were valid in Sciabacucchi.

This decision seems to have had a positive impact on parallel filings. In 2019 and 2020, more than 50% of Section 11 IPO filings had cases brought in both state and federal courts. In the first half of 2021 that percentage dropped to 18%.

While a drop in parallel filings is positive, the rate of filings for Section 11 IPO cases in general has not seen a significant drop. In 2020, Section 11 suits represented 15% (31 of 210 cases) of all securities suits. So far in 2021, they represent 12% of filings (11 of 91).

Notwithstanding the steady rate of filings against IPO companies, the reduction in parallel filings is starting to have an impact when it comes to D&O insurance pricing for especially strong IPOs and direct listings. While we will not see a rapid decline in pricing and self-insured retentions for these public companies, we are starting to see some moderate relief in pricing for especially strong issuers.

D&O Insurance Marketplace for SPAC IPOs and De-SPAC Transactions

The first half of 2021 saw an unprecedented number of Special Purpose Acquisition Company (SPAC) IPOs. Since January 1st, 2020, there have been 554 completed SPAC IPOs. More SPAC IPO registrations are currently pending.

With the recent surge of SPAC IPOs and the scarcity of insurers willing to provide insurance for SPACs, SPAC IPO D&O insurance premiums have increased significantly. According to Woodruff Sawyer’s proprietary client data, SPAC D&O premiums increased four to five times between Q1 2020 and 2021.

With the enormous number of SPACs looking to identify a merger partner, the question looming over the D&O insurance market is: Are there that many private companies ready for the scrutiny that comes with being a public company?

Unsurprisingly, insurance carriers are pricing their risk concerns into their D&O premiums for de-SPAC transactions.

D&O Insurance Capacity Update

Much-needed capacity and competition in the D&O insurance market is finally on the way. Today, a dozen new entrants are now active in the market.

Usually when new carriers enter the D&O insurance marketplace, they help to right-size pricing, saving D&O buyers money on premiums. We’re hopeful this trend starts to take hold once again in 2022.

Litigation Update

Over the past three years, the number of traditional securities class action suits filed has reached historic highs. According to Woodruff Sawyer’s proprietary database, DataBox, the likelihood of a public company being sued reached a record high of 5% in 2019 when 268 lawsuits were filed.

However, the total number of suits dropped to 210 in 2020, and for the first half of 2021 there have been 91 cases filed. This is a 13% drop in filings compared to the number filed in the first half of last year.The Number of Securities Class Actions Filed Has Dropped from 105 in 2020, to 91 in 2021.

This means that for the first time in a long time we may see a drop below the 10-year average of 186 cases annually, with a forecasted total of about 182 average cases in 2021.

See our Guide for more information about litigation trends, including topics that we predict will be hot in 2022.

Take a Deeper Dive into 2022 D&O Insurance Trends

Get more insights into what to expect for the 2022 D&O insurance market by downloading the Guide and/or attending our upcoming webinar.

The 2022 edition of the D&O Looking Ahead Guide covers all of the topics in this article in more detail, plus:

  • D&O pricing trends from CIAB
  • Hot topics that directors and officers need to know, including the latest on litigation, regulatory enforcements, ESG, and more
  • The results of our survey with 37 insurance D&O insurance carriers and their ideas on the current risk environment, D&O insurance risk appetite, and future pricing expectations
  • Additional insights from Woodruff Sawyer experts on public company D&O renewals, de-SPAC transactions, SPAC IPOs, insurance for large market cap companies, insurance for foreign filers, and much, much more

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

 

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Please join Woodruff Sawyer’s Priya Huskins, Cooley’s Shannon Eagan, and Nasdaq’s Jeff Thomas as they discuss this rapidly evolving area of litigation.

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The D&O Looking Ahead Guide: Everything You Need to Know in 2022

 

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All views expressed in this article are the author’s own and do not necessarily represent the position of Woodruff-Sawyer & Co.

Priya Cherian Huskins

Senior Vice President, Management Liability

Editor, Management Liability/D&O

Priya is a recognized expert and frequent speaker on D&O liability risk and its mitigation. In addition to consulting on D&O insurance, she counsels clients on corporate governance matters, including ways to reduce their exposure to shareholder lawsuits and regulatory investigations. Priya serves on the board of an S&P 500 public company and a large private company and has an impressive list of publications, speaking engagements, and awards for her influence and expertise in the industry. 

415.402.6527

LinkedIn

Priya Cherian Huskins

Senior Vice President, Management Liability

Editor, Management Liability/D&O

Priya is a recognized expert and frequent speaker on D&O liability risk and its mitigation. In addition to consulting on D&O insurance, she counsels clients on corporate governance matters, including ways to reduce their exposure to shareholder lawsuits and regulatory investigations. Priya serves on the board of an S&P 500 public company and a large private company and has an impressive list of publications, speaking engagements, and awards for her influence and expertise in the industry. 

415.402.6527

LinkedIn