Introduction

The marketplace is remarkably stable, despite ongoing concerns regarding a macroeconomic downturn, increasing defense costs, and heightened exposures. Heading into 2023 insurers expected a significant uptick in bankruptcy filings and more costly claims; however, the resulting loss trends were more moderate than expected and rate increases ranged in the single-digit range with some decreases at the end of the year. Prior years’ rate and retention increases, compounded with positive rate this year, propped up profitability, resulting in extra competition for new business.

As public company rates deteriorated significantly and M&A transactions dried up, more insurers shifted their growth focus to the private and nonprofit management liability space, and we expect that will continue into 2024.

Aon surveyed more than seventy D&O underwriters about risk issues, appetite, and pricing expectations. We are pleased by the number of responses and hope that insights and comments from the survey help you prepare for your 2024 renewal cycle.

Survey Results

Which management liability line of insurance (D&O, EPL, Crime or Fiduciary) is facing the most exposure heading into 2024? Underwriters view D&O and EPL lines almost equally in terms of having the greatest exposure.

As the survey indicates, underwriters view D&O and EPL exposure trends almost equally. A key dynamic impacting these lines are escalating defense costs. Most private and nonprofit management liability programs are duty to defend, which affords organizations one hundred percent defense cost allocation, and requires utilization of the insurers’ panel counsel. These firms have management liability experience and bill at lower rates, which apply to the retention. As litigation costs rise, and organizations seek to control the defense and elect reimbursement, insurers may allocate defense costs and counsel is selected by the organization with the insurers’ consent.

In 2024 we anticipate insurers will push to control defense costs further on reimbursement programs, and organizations should be sure to evaluate the negotiated rates upfront to avoid conflict at the time of claim. Ideally, the rates should be subject to reasonableness, but insurers are increasingly seeking to enforce rate caps.

In addition to financial trepidations and rising defense costs impacting all lines, each line of insurance is expected to experience amplified risk in 2024. Insurers are focusing on potential transactions, governance, and regulatory exposure in addition to financial distress as it relates to D&O.

How do you view overall exposures for private and nonprofit organizations?

Each line of management liability insurance is under pressure and insurers are scrutinizing profit margins of each line of insurance. As a result, organizations can differentiate their individual risk profile by providing robust underwriting submissions and hosting insurer meetings to secure the most competitive terms available. The leading concern across private and nonprofit organizations, including private equity backed portfolio companies is financial distress. Underwriters will continue to require interim financials, closely evaluate debt maturities and liquidity, and may restrict automatic pre-paid D&O run-off for bankruptcies or other transactions.

How do you see interest rates impacting underwriting decisions? About half of underwriters think interest rates will somewhat impact their underwriting decisions.

For D&O exposure, rank antirust, M&A, ESG, and bankruptcy from most (1) to least (4) concerning. Underwriters view bankruptcy as the most concerning exposure, followed by antitrust, M&A, and Environmental, Social and Corporate Governance (ESG).

M&A is anticipated to increase in 2024 and will be fodder for competition particularly in the private equity backed portfolio company space. M&A claims are anticipated, and insurers will seek higher retentions if they are aware of the transaction. Organizations anticipating transactions should work with their brokers to ensure their management liability program has the necessary pre-agreed extensions of the policy term as needed, and to negotiate competitive extended reporting periods.

With regulatory scrutiny on the rise, organizations should seek coverage options for D&O investigations and antitrust coverage, which we expect will be more available in the marketplace given the competitive landscape.

Retentions and pricing will be fairly stable, with potential for decreases, particularly on excess layers. Organizations should take advantage of overall program decreases to add Side A DIC D&O to their program, which offers personal asset protection of insured individuals.

For EPL exposure, rank layoffs, artificial intelligence, BIPA, and return to office from most (1) to least (4) concerning. Underwriters view layoffs as the most concerning exposure, followed by BIPA, return to office, and artificial intelligence.

EPL will be underwritten carefully, considering size, industry, geography, and loss history. Organizations with employees in California, highly compensated staff, or adverse loss history may experience higher retentions. Layoffs and return to work remain a concern, and insurers are increasingly seeking to sublimit or exclude litigation stemming from biometric information privacy statutes, which are expanding. Insurers are also watching how AI impacts the hiring process and may lead to claims of discrimination.

What do you expect overall private company (including nonprofits) D&O rates to do in 2024? Most underwriters expect rates to decrease moderately or remain stable.

What do you expect overall private company (including nonprofits) EPL rates to do in 2024? Most underwriters expect rates to decrease moderately or remain stable.

What do you expect overall private company (including nonprofits) crime rates to do in 2024? Most underwriters expect rates to remain stable or decrease moderately.

What do you expect private company (including nonprofits) fiduciary rates to do in 2024? Most underwriters expect rates to remain stable or decrease moderately.

Final Thoughts

Across the board, rates are predicted to remain stable or decrease modestly; with nonprofit expected to be largely stable. Rate decreases are generally anticipated to land in the single-digit range, and excess layers will likely see decreases at the higher end of that range.

Crime loss activity did not increase as predicted amid the pandemic, and insurers are more willing to offer higher social engineering limits, which is a leading exposure. Organizations should complete supplemental questionnaires and share controls to increase limits.

Fiduciary liability excessive fee litigation remains in the spotlight, as cases move downstream to smaller plans, and higher excessive fee or mass/class retentions will continue. Pricing should be steady barring any significant changes in plan structures and plan assets. Insurers are also watching potential health plan litigation, which may arise from the sponsorship of health plans and potential allegations of unreasonable fees.

Overall, the private and nonprofit management liability marketplace is stable and competitive despite mounting exposures, and 2024 will see enhanced competition. Some industries, such as healthcare, athletic organizations, and higher education, or organizations with adverse loss experience, are likely to see higher than average rate change across all lines. As exposures facing private and nonprofit organizations escalate it is important to work with a specialty broker that can support organizations through transactions, expansion, or financial distress. For 2024, Aon recommends working closely with your private and nonprofit broker to provide robust submission information to help with risk differentiation and competitive insurance program options.

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.