UK D&O: can stability continue in an unpredictable market?

Charles Boorman and Craig Watson, CEO and underwriter respectively of London and regional UK financial lines MGA Kayzen Specialty, discuss the challenges and opportunities on the horizon for the UK D&O insurance market.

The last year or so has been something of a relief for anyone trying to buy or broke D&O cover. As new capacity has arrived in bulk, many of the extreme pricing strains in this market have eased, with rates coming down from their historic highs and some restrictions on cover being eased.

At last, prices have recalibrated and it has been possible for brokers to provide options as part of their conversations with clients. However, the market has yet to settle fully as the shocks of the last few years continue to play out in unexpected ways.

This movement is driven by a combination of recognised markets softening their underwriting stance and widening their appetite, alongside new entrants and teams vying for business.

As is always the case, competitive pressures will suit the savvy broker who can now obtain a better customer outcome whilst the known markets and new entrants look to grow their portfolios.

One continuing challenge is that the arrival of new capacity has led to a competitive market for underwriting talent, causing a lot of movements across teams, particularly regionally across the UK.

These shifts have not helped deliver underwriting stability to clients or brokers, culminating in a drop in service levels and in some cases no service at all. In addition, there remain some post-Covid hangovers that are specific to D&O – Covid exclusions have been seen this year that have been widely derided as leaving clients almost without functional cover for these risks at all.

We need to do better than this if we are to maintain our reputation among businesses for providing a quality cover, and service that meets the needs of businesses.

However, all of the above reflects our own industry-facing situation and is, and as we see it, causing many in our space to navigate without sufficient regard for larger economic factors on which all D&O teams should be focusing.

Whether or not underwriting teams want to expand their D&O books and price competitively to do so, the wider UK economy is still due for further economic shocks in 2024. Insolvency rates in businesses are still historically high; and it looks increasingly likely that high interest rates, consumer under confidence, geopolitical uncertainty, energy costs and supply chain issues will continue to present challenges for multiple sectors within the UK economy.

The next year will be challenging for UK PLC; and to succeed in the coming year, D&O underwriting teams need to identify at-risk economic sectors and price and underwrite cautiously with the overall economy in mind.

2024 could be another bumpy year for D&O – nimble thinking and sharp underwriting minds will be needed to navigate the opposing forces that are pushing prices in the opposite direction to the economic realities.

Our prediction is that experience and durability of underwriting teams will tell in the coming year. There may be shocks in store for those who fail to react to the increased D&O risk and focus only on achieving top-line growth rather than considering longer term stability and positive returns on capital.