D&O insurers face new trials

The risk exposures that underwriters of directors and officers (D&O) liability face have expanded significantly in recent years, in the increasingly complex and interconnected business environment.

A recent report by international rating agency AM Best has stated that escalating litigation and regulatory risks present growing challenges while new, event-driven exposures have emerged. These dynamic market conditions are likely to continue developing over the next three to five years, testing the ability of insurance companies to accurately assess, underwrite, and price for these exposures.

AM Best expects the profitability of D&O insurance underwriters to remain under pressure over the near term, following six or seven years of inadequate pricing. Companies need to take reasoned, corrective rate actions, leading to accounts being priced more adequately for the exposures presented, the report stated. Underwriters also will need to be more astute with regard to decision- making about risk selection, coverage provisions, limitations, and exclusions.