In the first half of 2021, corporate bankruptcies, widespread layoffs and cyber breaches stemming from the COVID-19 pandemic are compounding the distress that was already plaguing the Management and Professional Liability Market in 2020.
Insurance carriers writing nearly every line of business in this specialized market segment are raising premiums and rates, reducing capacity and more closely scrutinizing accounts, according to the 2021 Management and Professional Liability Market Outlook by Risk Placement Services (RPS), the E&S wholesale broker and managing general agency.
“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,” said 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,” Cho added.
The D&O market for mature companies appears to be stabilizing, but the market remains challenging for companies that are going public. This sector has been exacerbated by the rise of special-purpose acquisition corporations (SPAC) to facilitate initial public offerings and the use of private investment in a public entity – which adds 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 said. “But that could change in an instant if litigation trends worsen and underwriters continue to focus on profitable results.”
In the Private Company D&O market, underwriters are requiring unaudited financial statements and a COVID-19 supplemental in most cases, as they try to uncover any potential liquidity issues that could lead to future bankruptcies. Minimum retentions are growing four- to fivefold, and capacity is being reduced, requiring the use of multiple carriers to reach the insured’s desired limits.
In the Cyber Liability market, underwriters are imposing sublimits, coinsurance and exclusions for cyber extortion in response to the escalation in attacks by hackers exploiting work-from-home network vulnerabilities during the pandemic.
“Cyber is a line of business that is expected to be in flux at least through the end of 2021 and beyond,” Cho said.
Here are a few professional liability highlights from the RPS Market Outlook:
- While pricing remains relatively flat in the admitted market for Lawyers’ Professional Liability coverage, carriers are reducing capacity, especially for firms with 10 or fewer attorneys.
- The Allied Healthcare Professional Liability market is undergoing a market correction in 2021, with primary rate increases averaging about 15%, and excess premiums growing from 50% of primary premium to 75% or 80%.
- The Professional Liability market for Insurance Agents and Brokers is also tightening in response to the recent surge in natural disasters. In response to insurers denying coverage for many professional liability claims, policyholders are filing E&O claims against their insurance agent.
To navigate this turbulent market, Cho advises agents and brokers to set expectations upfront with their clients. “Underwriters are inundated with submissions, so it is critical to provide them with complete and thorough information to best position your clients to secure more favorable prices and terms under these challenging market conditions.”