D&O insurance

Market situation and review

Now that the D&O market has increasingly calmed down and stabilized in the past year, insurers are once again more willing to take risks and more eager to write business. Almost all risk carriers are offering their contractual partners extension options with a two-year term. This suggests that the insurance companies fear premium erosion due to the healthy competition in the market. At the same time, the current economic situation, the threat of insolvencies – particularly among German medium-sized companies – and the pessimistic loss forecasts associated with this are seen as a critical sign. As a result, insurers tend to be reluctant to underwrite certain sectors.

These sectors include, for example, construction, real estate and chain stores, automotive suppliers and companies in the chemical industry. Insurers here pursue a decidedly technical underwriting approach and put the respective company developments through their paces. Existing customers with positive key figures, on the other hand, have a good chance of optimizing their premium level. In the case of D&O programs with excesses, there is generally little movement in the basic contract, but there is more scope for potential savings in the subsequent layers.

Market development 2024/2025

Capacities and limits

Most insurers underwrite independent sums insured of ten to a maximum of 15 million euros – individual players in the market also provide higher sums for risks with a very good track record. For large risks, up to 300 million euros can be purchased as a total limit across the German market. Entrepreneurs can obtain additional capacity through the UK and Lloyds market, to which deas has access at all times through its strong network.

Premiums

With regard to premium development, customers can breathe a sigh of relief: for risks of small and medium-sized companies, the market has more than settled down. Insurers are willing to underwrite, so premiums are falling and even remaining stable for risks that are difficult to insure – in some cases, there is even the possibility of savings. In addition, the risk carriers offer long-term agreements with a two-year term.
 

Large D&O programs with layered systems reveal potential savings, particularly in the excesses. How long this positive price trend for customers will continue is difficult to assess at present. In addition to the strong competition in the D&O market, there are other factors, such as the geopolitical situation, the tense economic development and the feared wave of insolvencies, that require insurers to adopt a more restrictive underwriting approach. If only a fraction of the announced corporate insolvencies in Germany were to become reality, triggering defense costs and damages costs for D&O insurers, a loss amount in the high three-digit millions could be expected, according to one estimate.

In this respect, it is to be expected that the downward price spiral will not continue, but will at least come to a halt in order to cushion the costs of risk carriers.

Terms and exclusions

The situation in the negotiation of terms and conditions has also eased. After the insurers demanded restrictions and additional exclusions in previous years, it can be observed that they are again acting more flexibly with regard to the contractual clauses. The experts at deas provide high-quality broker wordings. The aim is to always avoid individual exclusions or delimitation clauses, for example in cyber insurance, as well as coverage restrictions in the event of insolvency, to the advantage of the customer.

Stricter liability due to new guidelines and laws

In the coming months and years, various EU directives will be adopted or transposed into national law that could potentially have the effect of increasing liability for company management. These include, among others, the NIS 2 Directive (European Network and Information Systems Directive), which regulates the cybersecurity of companies and institutions and is particularly intended to raise management awareness of how to optimize risk management. At the same time, it includes cybersecurity requirements, fines and sanctions, as well as the direct personal liability of managing directors. The NIS 2 Directive not only refers to new liability issues, but also to a new dogmatics and could establish a new increased standard of care in its interpretation.

Further directives that enable a tightening of liability and subsequent recourse by managing directors are the European Commission's directive on the substantiation of explicit environmental statements and related communication, as well as the revision of the product liability directive and the newly planned AI directive. As a result, these new regulations place higher compliance demands on company management.

ESG – Environmental, Social, Governance

But it is not only the new and updated legislation that is becoming relevant; ESG has now also become a management issue for every company. Insurers are addressing these topics in particular during underwriter calls with corporate customers. In the environmental area, lawsuits with accusations of “greenwashing” are the focus of public attention. The background to this is environmental and climate-related advertising claims such as plastic-free, bioplastics, fair to nature, bee-friendly or climate-neutral. But social governance issues, such as the treatment of employees or compensation models for works councils, are also receiving special attention.

IPO/POSI

deas is also seeing positive market trends in the hedging of IPOs and capital measures using special products such as IPO (Initial Public Offering) or POSI (Public Offering Security Insurance). In this area, premium reductions of a significant 20 to 30 percent can be realized. In addition, sufficient capacity is available for high sums insured via the German and UK markets.

D&O/E&O for financial institution risks

There is healthy competition again for the special combined products for financial service providers or banks. This means that alternative offers for optimizing the level of premiums and conditions for this customer segment can be obtained without major difficulties. Premium reductions of ten to 20 percent are possible for risks with a good track record.

Conclusion

On the basis of the impending developments, deas expects the market to remain in flux in the coming months.

Competition among insurers is stimulating the market. Although no so-called “premium dumping” is expected, the trend is clearly pointing downwards – although this does not apply to loss-affected contracts or hard-to-insure risks. On the other hand, risk carriers fear a wave of insolvencies and the associated increase in claims for damages, which in turn could lead to a hardening of the market. In this respect, the conclusion of multi-year contracts can be interesting for many customers, enabling them to wait out further market developments with optimal and long-term coverage in the wings.

Your deas solution
 

At deas, we are confident that we will continue to be able to optimally implement our customized programs for corporate groups and our high-quality concepts for small and medium-sized companies in the best interests of our customers. To this end, we organize and conduct underwriter calls to ensure the best possible marketing of your individual risks and support you in the renewal process with expert advice at the highest level. As your broker, our aim is to achieve optimal conditions and market transparency for you.

Sandra Dammalacks