D&O rate increases hit 77.3%, reports Marsh

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Company warned that there is no end in sight to the recent rate hikes in the sector.

Rate movement in directors and officers (D&O) liability hit 77.3% in Q3 2019, figures released by Marsh have revealed.

This follows increases of 34.9% and 64.7% in Q1 and Q2 respectively.

The measure tracks Marsh’s exposure to D&O rates when covering FTSE 100 clients. For private companies, the figure for Q3 stood at 42.9%.

Beth Thurston, head of management liability at Marsh UK and Ireland, noted that the company has seen around 18 months of upward rate movement in the market. She added that there has been no sign of this acceleration in D&O rates slowing down in Q4.

No significant reductions in capacity are expected as a result of this market correction.

Causation
Thurston explained that this market movement had been caused by an increase in the individual accountability of senior executives.

She suggested that changes in litigation and regulation over the last decade have seen responsibility shift from companies to individuals, causing the volume and severity of D&O claims to increase.

The Bribery Act 2010 and the General Data Protection Regulation, introduced in 2018, were namechecked as milestones in reframing corporate responsibilities in the UK.

Similarly, Thurston noted that the UK was experiencing a changing environment in group litigation.

The market for D&O liability in the UK had previously been seen as relatively benign, causing some insurers to write higher risk US business to balance their portfolios.

Exclusions
Despite the significant increases in rate, Thurston said that D&O policies have only broadened in coverage over time.

She explained that this was partly because a softer market in previous years had given insurers the opportunity to expand the breadth of their policies.

From Marsh’s perspective, any additional exclusions are only being applied on an individual basis and not as standard by the industry.

However, Thurston did warn that insurers would be seeking to better clarify their policy wordings to ensure that any limits in coverage are made fully explicit to intermediaries and clients.

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