By: Paul Lefcourt, Co-Founder and Management Liability Practice Leader
Over the past year, several management liability insurance (MLI) carriers have changed their underwriting appetite/guidelines for privately-held D&O and EPL risks, nationally and most dramatically within California. Instigated primarily by many years of competitive underpriced premiums and broadened terms that have been unable to support escalating losses, these changes typically include one or more of the following:
This current shift is being fueled by an expansion of the types of allegations and size of monetary demands in claims being brought under Private D&O policies. This is occurring not just on larger accounts or “unicorns” (private accounts with $1B+ valuations), but also on many small – medium sized insureds. The #metoo movement is simultaneously driving up defense costs as well as demand and settlement amounts under EPL policies.
This is quite a change from the previous 3 – 5 years, when there was a surplus of capacity with MLI carriers, eager to write these accounts at competitive rates and terms. While there are still numerous MLI carriers with significant capacity, including some new entrants, the marketplace appears to be reaching a point where this capacity will no longer be utilized to offer the terms and pricing that we have been accustomed to seeing. All of this begs the question “Have MLI claims really gotten worse?” The answer is “yes,” most notably in California as well as a few other tougher states such as FL, IL, NY, and NJ. Based on our discussions with MLI carriers, they are experiencing numerous adverse claim trends:
What can our current and new privately-held management liability insureds expect as a result of the changes in the marketplace? We recommend that brokers set client expectations as follows:
We expect carriers will be asking for more underwriting information than they have previously, especially if the insured has challenging financials, the insured is seeking additional funding or has a challenging loss history.
Given the above trends, Socius has been advising our clients for the past year that the MLI market appears to be trending toward a hardening, following on the heels of numerous years of softness. Today, we continue to believe that this is the case. The gradual transition which we initially described has in fact taken firm hold, and is gaining real traction. We hesitate to pronounce the market has officially become “hard”, only because we hear rumblings which suggest that—as we proceed further into 2019—market conditions could very well deteriorate further, making what we consider hard today, even “harder.” For the moment, the warning to agents and brokers is: Manage expectations! Difficult news is coming, so let clients know early and often.
As always, please don’t hesitate to contact your local Socius representative for further details related to appetite changes of any specific management liability markets.
Please contact your Socius producer to discuss available coverage solutions.