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Willis Towers Watson’s Commercial Lines Pricing Survey for Q1 2020 was released on June 8th. According to the survey, aggregate commercial lines prices were up over 6.0% for the second quarter in a row, led by significant increases in umbrella/excess lines and directors & officers (“D&O”) liability lines, which both saw double-digit rate growth. Further, rate increases were higher in magnitude for larger accounts.
In the past few years D&O rates have consistently increased quarter-to-quarter, and COVID-19 will likely only increase D&O risk. Three (3) main factors have driven D&O rate increases: securities action lawsuits (e.g. WeWork), social concerns (e.g. #metoo), and cyber security risks (e.g. Zynga). According to Allianz, the likelihood of a public company facing a securities class action lawsuit rose from 3.5% in 2014 to 8.5% by the first half of 2018. These lawsuits often blame board members for a lack of risk management in areas like cyber security. Regulators are keen to target individuals rather than corporations when wrongdoing occurs. Furthermore, global legal environments are changing in favor of litigators. Class action filings jumped from an average of ~215 per year between 2014 and 2016 to ~403 per year between 2017 and 2019. This increasingly scrutinized corporate world, in which directors and board members are individually targeted in lawsuits, is driving the need for D&O insurance. As rates steadily increase, insurance brokers should see commission income increase, especially for brokers focused on faster growing specialty lines such as D&O liability. The uptick in income could be sustainable, as increased demand for D&O liability coverage appears to be here to stay. As a result, acquisitions interest in specialty brokers could be on the rise should rates continue to climb. SOURCE(S):
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TAG Capital Partners, LLC is not a chartered bank or trust company, or depository institution. It is not authorized to accept deposits or trust accounts and is not licensed or regulated by any state or federal banking authority. Alternative investments are speculative, involve a high degree of risk and are not suitable for all investors. Complete loss of principal is possible. Private placements are unregistered securities, considered illiquid and long-term investments. Distributions are not guaranteed.