After two years of turmoil, the professional liability market is moving beyond the uncertainty created by the COVID-19 pandemic, according to the Risk Placement Services (RPS) “2022 Management and Professional Liability Market Outlook," which points to a more positive environment this year.

"In the latter part of 2021, we saw all the classic signs that a challenging market was in its final stages," says Manny Cho, executive vice president, executive lines, at RPS. "New entrants—both insurance companies and managing general agencies—came into the management and professional liability markets. Even with these new entrants, capacity and limits may continue to tighten. However, it won't be to the same degree that we saw during the height of COVID."

After double-digit rate increases in 2021, the markets for management and professional liability have "rightsized" with regard to premiums, according to the report, which noted that insureds that are considered a good risk can anticipate rate increases in the 5-10% range this year.

Yet, there are exceptions. RPS cautions that many insureds will see premium increases outside of this range. In the directors & officers market, a claims-free insured with strong financials should anticipate renewal increases of 7%-25%, depending on the industry and jurisdiction.

One area that will continue to see difficult times are special purpose acquisition companies (SPACs). Litigation risk can hit the SPAC, as well as the target company being acquired. “This raises complex insurance issues, as there are cases that implicate three policies—the SPAC runoff, the private company runoff and the go-forward public company program," the report says. “In these situations, how the D&O programs were structured to work together is critical."

Another market trend that Rodney Choo, senior vice president, RPS, has observed is push back on defense counsel fee inflation. D&O policies cover “reasonable" defense costs, which leaves room for interpretation, he says, but encourages companies to “manage their legal fees in the same manner that they manage other vendor costs."

Meanwhile, cryptocurrency firms will find it hard to obtain coverage because appetite is extremely limited, limits are low and premiums are high “due to the perceived heightened exposure and fluid regulatory environment," explains Bryan Dobes, area senior vice president, RPS.

Public companies in the cryptocurrency market did not fare well in 2021 from a D&O perspective, with 11 federal securities class action lawsuits filed that year against cryptocurrency firms, according to Cornerstone Research.

Another unfavorable market trend that will continue in 2022 is restrictive policy limits. With $5 million being the maximum coverage amount most insurance companies are willing to offer for the majority of coverage lines, it could take more carriers and layers to reach an insured's desired coverage level.

Further, capacity varies by geography, with insurance companies treading carefully in plaintiff-friendly jurisdictions such as New York City, Southern California and the Miami-Dade area in Florida, the report says, noting that “capacity is at a premium in those areas as insurers decline to write coverage, particularly for lawyers professional liability and employment practices liability insurance."

These complexities make risks particularly well suited for the E&S market, “particularly as coverages and limits became more restricted," says Cho.

Will Jones is IA editor-in-chief.