D&O will remain competitive driven by aggressive new competitors

The professional liability sector of the property/casualty (P/C) insurance market remained dynamic through the end of 2016, with financial markets, economic, legal, and labour trends, in addition to social media concerns, among the numerous factors influencing the sector, according to a report by AM Best.

The report suggests this market will continue to be robust as competition in the directors & officers and errors & omissions insurance segments remains heightened. “If merger and acquisition activity spikes upward, D&O pricing and coverage terms could be pressured since M&A activity can yield an increase in claims. Major cyber attacks impacting businesses, and implicating board oversight, also could challenge D&O insurers to generate profits,” the report said.

Key professional liability coverages such as directors and officers liability (D&O), errors and omissions coverage (E&O), employment practices liability (EPLI), along with cyber liability, continue to be impacted by more than ample market capacity and the competitive pressure such capacity is placing on both rates and contract terms and conditions.

The report noted that, in recent years, mid-sized and larger multi-national primary insurers and reinsurers have looked to develop or grow their professional liability portfolios as part of an overall strategy for top line growth. Because of the medium-to-long-term nature of the lines of coverage involved, the success or lack thereof of these insurers will not be known for some time. This is especially true as loss frequency and severity trends shift over time, attributable to the impact of some of the aforementioned factors on different lines of coverage,” it said.

The report also suggested that the competitive landscape for D&O business is likely going to continue reflecting the impact of an aggressive posture adopted by newer competitors, including QBE and Berkshire Hathaway, among others that have been active in the primary D&O market space for a relatively short period of time, but are offering competitive products in terms of both coverage and cost.

“The effect should be favorable for insurance buyers of both primary and excess coverage. Rates for excess coverage have been softer for a longer period of time, going back approximately two years while softening on the primary side has been more of a recent phenomenon,” it said.

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