COVID-19’s impact on insolvencies, layoff-related discrimination and wrongful termination claims are accelerating the hardening market.
While most lines of the management and professional liability market were already hardening pre-COVID-19, this segment of the casualty insurance market “hasn't experienced the level of turmoil it is currently seeing since the early 2000s," according to the 2021 Management and Professional Liability Market Outlook by Risk Placement Services (RPS), the excess & surplus wholesale broker and managing general agency.
As COVID-19 brought about an increase in insolvencies, layoff-related discrimination and wrongful termination claims, as well as cyber breaches, carriers reacted with increased premium rates, reduced capacity and tighter underwriting requirements.
“Management and professional liability carriers are more focused than ever on profitability over growth, due to many years of depressed pricing and growing claims and then compounded by the pandemic," says Manny Cho, executive vice president, executive lines, RPS. “As a result, public and private company directors & officers (D&O) and cyber liability lines of business are seeing dramatic changes in pricing, terms and conditions. And this trend is expected to continue throughout 2021 and into 2022."
Overall, the D&O market for mature companies is stabilizing, however, the emergence of special-purpose acquisition corporations (SPAC) is creating new challenges for companies that are looking to go public, according to the RPS report. The addition of private investment in a public entity is adding more layers of underwriting complexity to already complex transactions.
“The SPAC market and potential future litigation could cause some major disruption to public company D&O—a line of business that is finally beginning to settle down in certain areas as we see new competition and new capacity for excess layers come into the market," Cho says. “But that could change in an instant if litigation trends worsen and underwriters continue to focus on profitable results."
As the world entered a new era of work-from-home arrangements across all industries in 2020, ransomware and cyberattacks increased resulting in underwriters imposing sublimits, coinsurance and exclusions for cyber extortion in response. “Cyber is a line of business that is expected to be in flux at least through the end of 2021 and beyond," Cho says.
In the professional liability segment, rates remain flat for lawyers' professional liability coverage while carriers are reducing capacity, especially for firms with 10 or fewer attorneys. Other highlights from the report include Allied Healthcare professional liability undergoing a market correction with rate increases averaging about 15%. Professional liability for insurance agents and brokers is also tightening as a result of policyholders filing errors & omissions claims against their insurance agent.
Olivia Overman is IA content editor.