These days, almost every single line of the Management and Professional Liability insurance business is seeing soft-market conditions. Why? A variety of reasons, including new entrants and capacity driving additional competition and lower premiums. However, even with affordable coverage available, the market can still be a challenging and unique sector for agents.
As 2023 wraps up, let's look at what to expect for the remainder of the year and into early 2024 in each coverage line to help you navigate the sector and ensure smooth renewals and claims.
Public Company Directors and Officers (D&O)
Public D&O insurance experienced the most disruption over the last two years, as it came off a hard market cycle in 2021. The current soft market was supercharged by the lack of companies going public in 2022, resulting in a highly competitive carrier landscape, with rates flat or experiencing single-digit decreases in Q1 and 15% to 20% decreases by Q4.
The acceleration of rate decreases continued into 2023 as capacity surged. Even with the initial public offering (IPO) market slowly starting to open up, the competitive landscape keeps pricing down, with industry averages in Q2 2023 anywhere between 20% to 25% lower year over year.
Two classes of businesses that continue to be challenging are cryptocurrency and cannabis. Every other class should continue to expect significant competition and decreases across the board going into 2024.
To compete in this soft market, it's important to take a much more dynamic approach. The more you can shift from insurance placement to adding value and helping companies identify their practical security risks, the more successful you will be in renewing business and gaining new clients.
Private Company Director and Officers (D&O)
The difficult market in Private D&O insurance from 2019 to 2021 was due to carriers' uncertainty over COVID and its impact on the financial condition of businesses. Many carriers pulled out of several classes of businesses, including California-based firms, first-time buyers and businesses operating a net income loss. Carriers also reduced their appetites and included policy endorsements and exclusions such as prior acts in their coverage forms. Many of the nuanced coverages once included were no longer available.
As with Public D&O, the Private D&O market softened in 2022 and remains soft.
Moving forward, most renewals with no carrier competition will likely see flat rates. Accounts in good economic condition and with no pending mergers could see a 5% to 10% rate decrease with robust marketing and some carrier competition.
Employment Practices Liability Insurance (EPLI)
A monumental shift in the EPLI market occurred in July/August 2022 and throughout 2023, with significant rate decreases. In Q1 2023, large monoline EPLI placements with employee counts of more than 500 or 1,000 experienced rate decreases of up to 200%, with 50% to 100% decreases depending on the industry class. Smaller small and medium-sized enterprises (SMEs) with 100 to 250 employees saw a 5% to 10% rate decrease.
A major development in the EPLI space is the emerging risk of artificial intelligence (AI). Most companies use AI in some form, including in their hiring practices. While AI delivers cost savings, we're keeping our eye on the type of claims that could develop, including systemic issues and embedded biases with the algorithms. These issues could involve age discrimination, Americans with Disabilities Act (ADA) violations and other embedded biases. As claims come to light, we may see additional underwriting questions regarding insureds' use of AI.
As we look ahead to 2024, the market will likely remain the same, with no adjustments made until carriers begin to pay losses. EPLI claims typically have a three-year tail before being resolved and settled.
Cyber Liability
By and large, we've seen steep rate decreases with new capacity in Cyber and the need to drive down premiums. Earlier this year, we saw a significant volume of flat renewals. However, today, a flat renewal may not be good enough for insureds. Market every single account to obtain the best and broadest terms and conditions available in addition to competitive pricing.
Although we don't see the Cyber market firming anytime soon, there could be some issues down the road with the recent rise in ransomware claims.
Professional Liability
Various products make up the Professional Liability market, such as Miscellaneous Professional Liability (MPL), Architects and Engineers (A&E) Liability and Lawyers Liability, among others. The market, in general, is aggressive, with some new entrants and overall competitive pricing. We are seeing some decreases but nowhere near the swings seen in Management Liability and EPLI. We expect this trend to continue throughout the year and into 2024.
One of the drivers behind the current market environment is the influx of managing general agents (MGAs) into the space over the last 12 to 18 months. Some MGAs began by underwriting Cyber insurance and transitioned into offering MPL products and Management Liability coverages. The new entrants have caused underwriters to increase their appetites, with a big rush to gain market share and premium dollars. But as with the MGA platforms for Private D&O, reliance on the MGA's carrier relationships has brokers missing out on other, even more competitive markets.
In looking at the program space for association business, risk-retention groups, and pooling, the Professional Liability market is much more favorable today than it has been in the past two years. We've gone from 30% and 40% increases to flat rates this year. Additionally, more carriers are willing to compete on a primary and excess basis.
A Look Ahead
Moving into 2024, overall, we don't expect many changes in the Management and Professional Liability space. However, we'll be watching how a potential recession could impact these business lines.
Marketing aggressively is critical in this soft and highly competitive landscape. Look for better coverage to provide clients, including better terms and conditions and retentions in addition to pricing. Work with a D&O, EPLI, and Professional Liability specialist to place accounts and get in front of renewals early. If you're not working with a wholesaler, consider doing so to increase efficiencies, turnaround times and coverage terms. You'll also gain a partner to handle claims and difficult renewal placements.
