Directors’ and officers’ (D&O) premiums may be reaching a ceiling as policyholders resist further increases after surges in recent years, a report by legal network Global Insurance Law Connect (GILC) says.

Sparke Helmore Partner Dino Liistro, providing input for Australia for the global report, says insureds may have reached their D&O limit after underwriters had previously found they were prepared to increase their spending.

“Over the last year, insureds began maintaining the same legal spend in the face of rising premiums by increasing excesses or reducing limits of cover and in some cases looking to other risk management solutions to bridge the gap,” he says.

GILC says for Australia, the COVID-19 pandemic appears to have created a volatile and uncertain environment for businesses in a strained D&O market, which is anticipated to stabilise and soften over the next two years.

Mr Liistro says there has been a decline in securities and insolvency-related investigations and claims over the past 12 months, with legislative changes and government support during the pandemic assisting companies.

But also related to the pandemic, underwriters anticipate further claims in the employment practices liability space, around changing conditions in workplaces, and in respect of policies with an element of crime cover, he says.

Risks related to cyber crime and data protection are expected to grow in line with companies’ rising reliance on technology and data to drive revenues and business operations.

GILC Chairman Jim Sherwood says globally the pandemic has fuelled corporate mergers and acquisitions and workplace impacts, while cyber attacks, class actions and regulation are increasing potential risks.

“Together, this all adds up to an increased need for protection for directors and officers, in a market which lacks capacity to supply it,” he says in an introduction to the report.

“The impact has been a notable growth in self-insuring for this class of cover, alongside the increased use of letters of indemnity for directors and officers.”

Climate change is also having an increasing impact, with many countries seeing increased attempts to hold directors and officers liable through the courts for poor environmental practices, the report says.

GILC says insurance lawyers in 20 countries had input into the report, titled D&O global trends, insurance capacity and pricing.