Marsh says there is a chance of new directors’ and officers’ (D&O) insurance providers entering the market now that the premium pool “appears sustainable” after rate increases of over 100% in 2018 and last year.

However, rates are expected to still harden in the near to medium term as class actions and related claims show no signs of easing, the broker says. Marsh’s ASX200 client data shows average D&O rates have increased more than 200% so far this year.

“The premium pool being collected now is at a level which appears to be sustainable,” Marsh Head of Financial and Professional Liability Craig Claughton told insuranceNEWS.com.au.

“The conditions are at a point where new entrants may consider coming into the market. However, premiums are still expected to grow in 2021.”

A number of key insurers quit the Australian and global D&O markets this year, according to Marsh’s Directors’ and Officers’ Liability Insurance Market Recap 2020 report. Competition remains low and Marsh says it is unaware of any new players that entered the local market this year.

The report says insurers have compounded the hardening tough D&O environment by engaging in “opportunistic pricing” and offering little flexibility, leaving companies in a bind as premiums show no signs of easing in the foreseeable future”.

As a result many companies have been forced to review their entire risk management strategies, with some looking at alternative and previously untested risk transfer solutions as a way around the situation.

Marsh says instances where insurers have used opportunistic pricing as a negotiating tactic include holding off quotations or renewal terms until a few days before policies expire, potentially leaving insureds vulnerable with limited choice at the eleventh hour.

In such cases insurers often charge premiums “many times greater” for a policy’s excess layer portion, despite it carrying less exposure than the underlying layer of coverage. In a multi-layer policy the underlying layer responds first to a covered loss and when its limit is exhausted, then only will the excess layers kick in.

Marsh says the majority of insurers have displayed a general level of inflexibility and unwillingness to find solutions for their clients.

“These insurers, seemingly, are not concerned about losing such business,” Marsh says in the report. “There are, however, exceptions to the majority, where select markets are still willing to work with loyal clients to reach mutually agreeable solutions and outcomes, which has resulted in some insureds maintaining a reasonable level of cover.

“However, many insureds are left with little or no choice. Where insureds have chosen to stop buying cover due to cost, this premium is potentially lost forever to the insurance market.”

Companies are looking at non-traditional ways to protect directors and officers, such as using captives where the provider of the insurance cover is wholly owned or controlled by the insureds.

Click here to download the report.