Overview
The directors and officers insurance market has experienced favorable results in recent years, but ongoing risks and market uncertainties could challenge sustainability.
AM Best discusses the current state of the directors and officers insurance market, highlighting recent favorable results, the need for pricing stabilization, and the evolving risks that are reshaping underwriting. Beinsure Media has selected the most important points from the report.
5 Key Highlights
- The D&O insurance market has seen strong profitability, driven by rate increases in 2020–2022. However, insurers face growing risks, including regulatory uncertainty, economic pressures, and increased litigation threats.
- While premiums have dropped by 20–40% for some renewals in recent years, Blades believes this trend is unsustainable. Emerging risks such as AI-related liabilities and social inflation may prevent further significant rate reductions.
- High-value settlements and litigation funding continue to increase claim severity. Insurers must account for these pressures as corporate officers face greater legal exposure.
- Insurers have adjusted underwriting practices by tightening coverage terms, increasing self-insured retentions, and refining policy exclusions. This shift aims to maintain profitability despite rising risks.
- Although challenges persist, insurers’ strategic adjustments provide some optimism. If pricing stabilizes and underwriting remains disciplined, recent favorable results may continue into 2025.
Strong Profitability but Increasing Uncertainty
D&O insurers have benefited from significant rate increases in 2020, 2021, and early 2022, which addressed pricing adequacy and drove profitability. The strong results have attracted new market entrants and supported existing players.
However, despite these gains, corporate officers face growing risks. A shifting regulatory landscape, economic uncertainty, and the potential impact of a new U.S. presidential administration could pressure corporate decision-making.
Social inflation is still an issue with regards to high settlements and high judgments against corporations in the lawsuits they’re facing. That’s a risk that continue needs to be looked at and addressed. Litigation funding is still something that’s very meaningful in the marketplace from a loss severity standpoint.
Looking at the marketplace and looking at the fact that recent results have been very favorable, it is somewhat offset, AM Best believes, by the risks that are still prevailing and the greater uncertainty that’s going to face corporate executives.
To that extent, we’re in uncertain times, and we’ll just see how this manifests itself as we continue to go through 2025.
David Blades, associate director of industry research AM Best
Underwriters in the D&O insurance sector in 2025 continue to benefit from significant price hikes and refined market practices adopted between 2019 and 2021.
These adjustments drove profitability back to healthy levels, according to Fitch Ratings.
However, the market’s improved performance has spurred increased underwriting capacity and intensified price competition, a trend unlikely to reverse soon.
D&O pricing now trends contrary to most U.S. commercial lines, which still experience positive price movement, although at more moderate levels compared to prior years.
A wave of sharp premium rate increases and improvements in US market underwriting practices from 2019 to 2021 led to a significant recovery in segment performance.
Allianz Research expects global growth to slip into negative territory in Q4 of 2024 (-0.1% q/q), followed by a slow recovery at +1.5% in 2024.
Declining D&O Premiums Likely Unsustainable
D&O liability premiums have declined significantly in recent years, with some renewal accounts seeing rate reductions of 20–40%. However, David Blades cautioned that this trend is unlikely to continue.
Given the risks corporate officers face and the negative trends affecting claim severity, there needs to be some pricing stabilization.
“I do have a feeling that there will be some stabilization, but rates trending down the way they have been the past couple of years, where there have been significant rate decreases 20, 30, 40% decreases for renewal accounts. At the start of 2025, we’re seeing smaller, single-digit decreases, which suggests the market is adjusting.”
Advanced technologies and the associated risks are not just limited to AI
AM Best pointed to emerging risks such as artificial intelligence (AI), advanced technologies, and continued social inflation as factors that could drive higher claim costs.
AI-driven decision-making introduces new liability exposures, and litigation funding remains a major concern.
“These risks make it difficult for premiums to keep declining at the rate we’ve seen in previous years”.
Social inflation, litigation funding are also concerning issues for corporate executives. There are a number of different factors that are increasing the potential risks that corporate directors and officers face, particularly from a loss severity standpoint.
Therefore, I don’t think the recent rate decline trend can continue on. We do need to see some stabilization in terms of rates and pricing.
At the beginning of this year, it appears the rate changes are stabilizing towards smaller decreases, single-digit decreases on a year-over-year basis, with the expanding risks that corporate directors and officers are facing, with the exposures that AI can bring in terms of companies that are utilizing AI in their strategies and in their decision making, and the risks that might emanate from decisions.
Underwriting Adjustments in Response to Evolving Risks
D&O insurers have adapted their underwriting strategies to address changing exposures. Beyond rate adequacy, insurers have adjusted terms and conditions, tightened coverage limitations, and increased self-insured retentions.
Underwriters have taken a more strategic approach, reassessing limits on an account-by-account basis.
“There’s been significant change in policy language, exclusions, and how insurers determine their role in an insured’s overall program,” David Blades explained. These adjustments aim to maintain profitability while managing increased risk.
In terms of terms and conditions, and how they approached the risks that they were writing, that’s also changed in recent years in terms of coverage limitations, exclusions, and self-insured retentions.
That makes the marketplace a little bit different in terms of D&O insurers looking at the uncertainty and looking at the risks they’re facing. Underwriters have done a better job determining their limits profile.
“The evolving approach hasn’t just been about pricing. Underwriting has changed significantly,” Blades said. “That provides some optimism that recent favorable results could continue, despite the challenges ahead.”
With growing risk exposures and a changing regulatory and litigation environment, the D&O insurance market faces a period of adjustment. While profitability has been strong, insurers will need to navigate pricing stabilization and evolving underwriting strategies to maintain long-term sustainability.
Underwriters are taking different approaches and trying to be more strategic in terms of how they approach the evolving D&O liability risks that their clients are facing now.
The evolving approach hasn’t just been pricing focused. It has definitely involved changes in the underwriting.
For those reasons, that provides some optimism in terms of whether the type of results that we’ve seen, the favorable results that we’ve seen recently, can continue.
According to Aon’s quarterly D&O market index, primary policies renewing with the same limits and deductibles started seeing negative premium rate changes in the second half of 2022.
This followed the strong hard market conditions of 2019-2021. By 2Q 2024, pricing declines had accelerated to 6.5%, up from 5.5% in 1Q24. Further price erosion will likely strain D&O performance.
D&O Insurance Quarterly Pricing Index
Identifying when D&O pricing dips below levels that ensure adequate returns on capital remains challenging.
Other risks that could trigger D&O claims include regulatory and compliance challenges, employment practices, cyber threats, climate risks, and cryptocurrency-related exposures.
D&O Insurance Rates Trends
Financial and professional lines rates dropped 3% in Q4, with directors and officers – D&O insurance liability seeing the largest decline at 5%.
D&O pricing remained stable, with single-digit decreases in both primary and total program rates, according to US Insurance Rates Trends.
The gap between primary and excess layer pricing narrowed. Some insurers either exited renewals or reduced capacity, citing an inability to maintain current premium levels.
Fiduciary insurance rates remained mostly unchanged. Insurers faced lawsuits applying Employee Retirement Income Security Act (ERISA) theories from excessive fee litigation in retirement plans to health plans and pharmacy benefit managers (PBMs).
Ongoing ERISA 401(k) excessive fee litigation, including costs for defense, settlements, and plaintiffs’ fees, continued to drive insurer losses. Improper investment claims became a notable issue.
US financial and professional insurance rate dynamics
Retention levels remained a concern. Insurers generally required minimum retentions between $1 mn and $10 mn for larger plans, reflecting worries about rising defense costs and expert fees. Recent lawsuits related to pension risk transfer and pension calculations pushed underwriters to reassess defined benefit plans.
UK Financial and Professional Lines Rates Decline, Led by D&O
Financial and professional lines rates fell 8%, with directors and officers (D&O) liability rates dropping between 5% and 10%. The UK D&O insurance market remained well-supplied, fostering increased competition. However, fewer clients secured rate reductions compared to previous periods.
Capacity in the financial institution market remained abundant. The commercial crime market also experienced ample capacity, with insurers offering larger line sizes, broader terms, and lower retentions.
Errors and omissions (E&O) rates increased 1%, while financial institution (FI) rates fell 2%.
Financial and Professional Lines in Europe: D&O Rates Decline
Financial and professional insurance lines in Europe saw a 7% rate decrease, with excess layers experiencing larger reductions than primary layers. About 80% of directors and officers liability coverage renewals benefited from lower rates. Crime insurance rates also fell due to increased competition.
Capacity exceeded demand as both new entrants and incumbents expanded their offerings. Large D&O programs renewed with LTAs featuring pre-agreed rate reductions, adjusted mid-term based on market conditions.
Some clients used savings to increase limits and enhance programs, including crime insurance. Opportunities emerged for renegotiating policy terms and expanding coverage, particularly in D&O and environmental, social, and governance (ESG) risks.
Canada Financial and Professional Lines: Rates Decline, Market Remains Favorable
Financial and professional lines rates in Canada dropped 3%, with directors and officers (D&O) liability insurance continuing its downward trend, though at a slower pace. New market entrants increased capacity, keeping rates lower.
Negotiations shifted toward coverage enhancements rather than rate reductions. Insurers anticipated increased IPO and transactional activity in 2025.
With limited opportunities in public D&O, insurers focused on private D&O, where rates remained favorable for well-rated companies.
Rate pressures in the D&O market led insurers to target new business and expand into ancillary lines. Fiduciary excessive fee litigation remained a key issue, while investment prudence emerged as a major underwriting focus. Employment practices liability (EPL) rates and exposure remained stable.
FAQ
With rates stabilizing, negotiations have focused on improving coverage rather than reducing costs. Policyholders have had more opportunities to renegotiate terms and expand coverage, particularly in D&O and ESG-related risks.
Insurers are targeting new business and broadening their portfolios due to rate pressures. They are also focusing on investment prudence and fiduciary excessive fee litigation as key underwriting considerations.
EPL rates and exposures have remained stable, with no significant fluctuations. Underwriters continue to monitor employment-related risks but have not implemented broad rate changes.
Insurers expect an increase in IPOs and corporate transactions in 2025, which could lead to a rise in demand for D&O coverage. This may influence pricing and underwriting conditions in the coming year.
Market capacity remains strong, keeping rates competitive. However, insurers are emphasizing underwriting discipline, with a growing focus on investment prudence, ESG risks, and coverage expansion rather than rate reductions.
……………….
AUTHOR: David Blades – Associate director of industry research at AM Best, Oleg Parashchak – CEO at Finance Media
