The QCA’s Q2 sentiment survey has shown increasing costs and falling cover for directors and officers of smaller quoted companies. On average the community saw an increase in premiums of more than double from £22,000 to £48,000. Equally concerning was the simultaneous reduction in cover for directors who suffered a fall in average coverage by over £1m from £9.4m down to £8.3m, all whilst premium costs have soared.
Feeding into these averages are also some very stark examples in the market with one respondent reporting that “rates had gone up [by] 4 times” and another citing a 60% increase in their premium.
“Premiums have soared due to anticipated risk of company failures when the pandemic safety net ends. We tested 8 companies and 6 would not quote”
QCA Sentiment Survey respondent
The data from QCA members is supported by Willis’ comprehensive D&O Global Survey where the majority (64%) of respondents saw their insurance premiums rise. Additionally, when asked if they thought the market for Directors & Officers liability was hardening an overwhelming 71% agreed to a moderate or great extent. This compares to just 9% who believed that the market was not hardening at all and a total of 19% who felt it was hardening to a small or some extent.
Significant indicators also represented this hardening through factors related to issues other than cost. Much like the QCA members, 30% also saw a reduction in the policy limit. A greater proportion, 39%, saw an increase in the self-insured retention / deductible(s). So again, it is apparent that the providers are offering directors less quality coverage at a higher price.
Directors are concerned that this trend is set to worsen and government policy will exacerbate the issues that have caused tightening in the D&O insurance market. Most significantly, the ongoing BEIS consultation on audit and corporate governance is set to vastly increase Directors’ liability making it significantly more difficult to get good insurance at a good price.
“What is happening in D&O is a reflection of the uncertainty in the market arising from a stifling regulatory environment, excessive corporate governance requirements, audit failures etc. All in all very disheartening”
QCA Sentiment Survey respondent
One of the other key issues with the emerging regulation is that some of the proposals will increase personal liability which cannot be covered by D&O insurance. There is also the risk that the tightening of the insurance market and increase in director liability will have a significant negative effect on board quality and diversity; something which will subsequently impact on business performance.
If directors are less able to get D&O cover and their personal liability is increasing they will feel unable to work with confidence and will be driven away from taking positions on public company boards.
The QCA Quarterly Sentiment survey has revealed a concerning trend within D&O insurance that also resonates with other research conducted within this area. The impact may potentially weaken governance of the UK’s public companies as the supply, quality and diversity of effective board members decreases.
Read the full QCA Q2 Small and Mid-Cap Sentiment Survey.