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On the 16th of March 2024, WTW launched our latest Global Directors’ and Officers’ Survey report produced in collaboration with international law firm Clyde & Co.
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We're thrilled to have received responses from more than fifty countries around the world to our latest survey, which enables us to provide analysis for more regions and more countries than ever before.
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There's a lot of change this year. We've seen a new number one risk for directors and officers, health and safety.
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We found this to be a genuinely surprising change.
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It isn't a surprise that so many people rank health and safety so highly.
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It has always been in the top 7 risks for many years.
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What is surprising is that it has moved from being 4th or 5th ranked risk for the last few years to being the number one risk this year.
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We've spoken to a number of people who completed the survey and there was no particular consensus as to the reasons behind the change.
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There seems to be general agreement that health and safety is a risk which boards must consider, and the most consistent point raised was that the change may be more reflective of people becoming more comfortable with managing cyber and data loss risks, rather than the health and safety itself has been reprioritized.
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Another interesting point that was put forward was that mental health has become a much higher priority in business in recent years. Particularly with the increase in home working following the COVID-19 pandemic.
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We also have two other new entrants into the top 7 risks this year, systems and controls, as well as breach of sanctions.
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If we look up breach of sanctions first, I don't think anyone will be particularly surprised to see breach of sanctions in the top seven.
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The Russian-Ukraine crisis bought a lot of new sanctions which impacted on a lot of companies and their directors and officers.
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As regards systems and controls, the most obvious explanation for the higher position of systems and controls in the rankings this year is the ongoing increasing regulatory obligation on companies and their directors and officers.
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A clear example of this can be seen in the increasing climate related reporting obligations that are being imposed, as demonstrated most recently by the SECC finally publishing its climate reporting rules in March.
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While the SECC action post dates the closure of the survey, California had passed its own climate reporting obligations last year and the EU had continued its drive across various ESG related measures, not just climate, with many other countries around the world focusing similarly on this area.
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Another example of the increasing burden can be found in the new failure to prevent fraud corporate crime in the UK, where there has also been changes to the Corporate Governance Code.
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We also looked at AI this year for the first time.
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Notably, AI does not feature in the top seven overall, nor in the top seven for any size of company, any industry sector, nor indeed any region except for the Middle East.
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One of the people we spoke to following the survey suggested that perhaps AI may be contributing to the increasing focus on systems and controls, rather than being seen as a risk for directors in its own right.
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Another area where there's been interesting developments is climate change.
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While still not a top seven risk in the overall ranking, it does show up in the top seven for Asia, Australasia and in the Middle East.
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Climate change has been consistently in the top seven for Australasia for the last three years.
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It has been less consistent in Asia, with climate change being in the top seven in 2022, not in the top seven in 2023, but back again in 2024.
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The position in GB is even more extreme, with the ranking number six in 2022 and #1 in 2023, but then dropping out of the top seven in GB entirely in 2024.
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The change in 2024 may reflect the changing governmental focus we saw last year in GB.
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However, the GB result may need further inspection to be understood correctly.
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While it was the number one risk last year and isn't even #7 this year, in terms of the proportion of people ranking it as very or extremely important, the percentage has actually increased from 44% in 2023 to 52% in 2024.
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In fact, risk rankings in GB have increased pretty much across the board.
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As just mentioned, last year's number one result for GB was at 44%.
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This year, #1 is at 86% and even the number 7 result has 69% of GB respondents saying that the risk was very or extremely important.
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In addition to the risk questions, the survey also asked respondents to consider a number of D&O insurance related questions.
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Some of this shows some interesting divergent between what we as insurance brokers might expect and what the respondents are saying.
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For example, 41% of respondents said that the premium for their D&O insurance increased in the last year.
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Given that the D&O market for many regions saw significant reductions in 2023, this is a surprising result.
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Another interesting statistic is that 32% of respondents said that they'd either already used a captive in their D&O insurance program or were considering doing so.
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This demonstrates the risk for insurers of the extreme premium increases and capacity reductions we saw during the recent hard market.
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The risk in some cases is that premium disappears from the commercial insurance market entirely as some companies look for more stable solutions despite the recent drops in D&O insurance rates.
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As you can see, there is a wealth of information available from the Global Directors and Officers survey.
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I've only touched on some of the highlights and on the website you will find not only the report itself, but also a number of articles providing overviews of some of the regions, including for the first time overviews for Africa, the Middle East and India, together with articles focusing on some of the risk areas in more detail.
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The global nature of the survey allows us to consider the results by region, by industry sector and by company size.
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Look out for more regional analysis from WTW offices around the world.
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And if you would like more information on any of the matters covered by the survey, please do get in touch.
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The WTW GB D&O team engage with over 40 London and Bermuda insurers to place directors and officers liability coverage for a broad spectrum of clients in terms of their size, industry and geography.
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As such, we have a deep insight into current London market dynamics.
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The London D&O market experienced significant rate reductions throughout 2023 when compared to previous years.
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The increased competition between insurers has continued to drive these rate reductions as well as capacity and coverage improvements.
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This competition has been driven not only by the increased capacity appetite from incumbents and new entrants, but also from reduced limit purchasing by our clients, a depressed M&A landscape and a flight of international risks to local markets away from London. Meaning carriers are chasing portfolio growth from an ever reducing number of opportunities.
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Throughout the entire year, most of our clients saw a decrease in their renewals.
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H2 rates followed the decreased trend of H1.
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In Q3, 365% of clients saw their primary layer renew with a decrease on last year's premium whilst 86% saw their excess layers renew with a decrease also.
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Q4 results were even greater. 90% of clients saw their primary layer renew with a decrease and 100% of clients saw their excess layers renew with a decrease.
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Policy terms also reflected the market softening with insurers increasingly willing to underwrite business on an anyone claims limit basis as well as using WTW's proprietary wording Dark Star 2023.
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We also successfully launched a side A DIC facility called A Star giving streamlined access of up to 80 million in capacity on a best in class A side DIC wording.
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Looking at the claims environment for D&O at the time of producing our H2 2023 update, following a period of significant decreases in the volume of claim and circumstance notifications between 2020 to 2022, the number of notifications in 2023 were also comparatively low at a similar level to that seen in 2022.
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According to the Stanford Law School Cornerstone Securities Class Action Clearing House, U.S. Securities class actions for 2023 were down from the historic highs of 2017 to 2020, but slightly higher than 2022.
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As Q1/ 2024 comes to an end, we begin collating and analysing data on rate and experienced market conditions.
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However, anecdotally we can say we have continued to see material rate reductions, particularly on large more complex client placements that saw the rate increases of many multiples during the hard market and a significant proportion of all clients achieving a premium reduction at renewal.
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Whilst the market forecast is that 2024 should see smaller rate declines than 2023, rates across any segment even those with high risk profiles are unlikely to dramatically rebound despite insurers concerns around rate adequacy.
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This is also despite the current landscape of rising legal costs and the potential for larger securities class action settlement values on yet undeveloped pre 2020 claims years.
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The increasing regulatory environment and reinsurers as well as media scrutiny on the D&O market has not appeared to have impacted underwriting discipline thus far, with the simple dynamic of supply outweighing demand continuing to define the market.
