COVID-19 has presented unique challenges. Businesses, directors and management teams have been under significant pressure to make critical decisions for colleagues, customers and other stakeholders in addition to complying with moral and legal obligations.
COVID DO Insurance

Disruption to businesses, contingency and continuity plans will be under focus for months to come as businesses navigate their way through the aftermath of the pandemic, and beyond. Decisions taken could subsequently result in litigation, with actions brought by:

  • employees for injury or breaches of employment practices law – including the risk of class actions
  • shareholders, investors, or other stakeholders
  • regulators

So what’s the impact on D&O insurance?

The UK D&O landscape has been altered by increased class actions and changing legal and regulatory environments globally, emphasising the accountability and liability of directors and officers. Companies which used to be slightly shielded from claims exposure in other territories, despite purchasing multinational D&O programmes, are now having to take into account global claims trends.

COVID-19 is very likely to lead to significant D&O losses, even the most spurious of unfounded claims cost money to defend – and underwriters are, understandably, concerned.

Already we have seen two securities class actions resulting from the outbreak, with the likes of Norwegian Cruise Lines1 and Inovio Pharmaceuticals2 taking class actions in the US arising from the pandemic.

We expect to see a number of insolvencies as a result of this pandemic, which may lead to future litigation. We also anticipate a significant number of other COVID-19 related claims including claims from investors, customers and employees who are unhappy with the way the company has handled the crisis.

What this means for businesses

The result has been significant increases in premiums, excesses and cover restrictions in all sectors and across UK public, private and US traded firms of all sizes. Due to the cost and lack of availability in some sectors, this could lead to director resignations as businesses are unprepared to pay for such high premiums and directors do not want to be held personally exposed in the event of a claim.

We have seen a significant retraction in appetite, especially for new business, with some insurers moving into an underwriting mode traditionally seen during times of recession – with authority for decision making moved away from individuals and instead moving to global senior management

Some insurers have pulled out of the market entirely, and it is not unusual to see significant double digit rate increases. We believe the market will only get tougher, as we continue to navigate a very uncertain 2020, with D&O premiums at historic highs and the market for D&O will remain a challenging place to do business.

Advice for businesses seeking D&O cover

It’s no longer acceptable to assume that your renewal will be secured easily, or that your policy will have the same breadth or depth of coverage without a significant rise in premium.

The extent that your renewal will be affected will vary depending on your risk profile, claims record, strategies for risk management, and the capabilities of your insurance broker but in this current climate, the vast majority of organisations are likely to see sizeable raises in premium rate. Now, more than ever it’s important to work with an experienced broker that has access to the global insurance market, which can work with you to help you find a suitable solution.