2017 was a record year for cyber attacks, and not in a good way. According to Risk Based Security, Inc., there were 3,833 breaches reported through the end of September 2017, exposing over 7 billion records. This represents an increase in the number of reported breaches of 18.2%, compared with the same period in 2016, with the number of exposed records up 305%.
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As we look to forecast the state of the D&O marketplace in 2018, a close examination of 2017 events and trends is critical. The D&O market in 2017 was best described as a market in flux. The underlying tension in the D&O marketplace was palpable. The numbers of claims increased dramatically, but pricing remained competitive for many risks and flat for most.
The environment for interest rates is all but confirmed for increases, and yet the cycle continues. Its durability doesn’t seem threatened by either a ready supply of equity or debt or even the possibility of oversupply. We have been noticing of late that ‘sectors’ are getting a deeper review by the insurance underwriters. Whereas in the past, the good results for insurance companies professional real estate risk was more uniform overall classes, we have seen that change more in the last 12 months. The ‘Amazon’ effect has put malls and strip shopping centers into a much greater focus and multifamily is also perceived to on its way to an oversupply issue. These two classes are seeing a higher level of scrutiny from the underwriting community.
The market continues its infatuation with social engineering and/ or impersonation fraud losses and insurers’ coverage of same. Social engineering scams involve crooks who trick insureds into transferring money by impersonating clients, vendors or the insured’s own executives. Almost all fidelity insurers offer social engineering coverage; however, it is important to note that coverage is not standardized and is most often subject to a sublimit.
Employment Practices Liability is in the spotlight as we enter into 2018 with a cultural shift emboldening victims to speak out, bringing a wave of public sexual harassment allegations. The headline allegations may lead to large loss payouts, and it is likely that there will be an increase in sexual harassment allegations at all companies, along with increased focus from management teams and regulators across the country.
Fiduciary Liability renewals were stable in 2017 and this coverage line continues to be the least affected in Management Liability. There have been sizable settlements in this line over the past 12 months that are noteworthy; however these are not anticipated to reflect a change in overall market condition.
The attempted repeal and replacement of the Affordable Care Act has been one of the most closely watched and anticipated political events of 2017. Attempts to dismantle the signature achievement of the Obama administration have been discussed and debated before our eyes on every news outlet in the United States.
The marketplace for Kidnap and Ransom (K&R) insurance remained stable and competitive through 2017. Premiums are as low as $400 per million limit for companies with limited foreign exposure (locations or travel). For companies with higher exposures including foreign travel and locations, premium is around $1,000 - $3,000 per million of coverage limit.
The General Counsel of a large vacation ownership company approached us with concerns about the quality and breadth of their D&O and E&O programs—most notably, their lack of key E&O features to insure their numerous professional services provided to their members and other outside third parties.
A large chain of pizza franchises was frustrated with their broker and their EPL insurer. They felt that due to some of their risk characteristics (most notably being a large California-based fast food business), the program was not addressing their needs.