Executive Liability Insurance Market Update (Sponsored Content)

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Executive Liability (also known as Management Liability) is a broad term used to encompass Directors and Officers (D&O), employment practices and fiduciary liability.  These are key coverages for any company but are especially relevant for ESOP companies in mitigating corporate and ERISA exposure of their executives and fiduciaries.  Understanding recent trends is vital in navigating upcoming renewals, or in obtaining coverage for the first time.  The good news is that these coverages are an anomaly to the broader trends of the commercial insurance market, which is experiencing rate increases.

During the period of 2019 to 2021, D&O insurance was in a ‘hard market’ due to a lack of capacity stemming from rising claims frequency and costs.  Rate hikes of 10%-20% were commonplace.  However, rates began stabilizing in 2022 and well-performing companies with clean claims history began to see small premium decreases. 2023 saw further softening of market conditions with more capacity entering the marketplace.  As we head toward the 2025 policy renewals, due to more recent insurer competition, not only has premium stabilized and decreased in some areas, but coverage enhancements have started to be added as well.  This could include amendments to general terms and conditions, additional limits of cost of defense, and coverage extensions such as broad anti-trust coverage. 

Fiduciary liability has trended in much the same way as D&O.  Small to mid-size ESOP transactions and long-standing ESOPs are currently viewed favorably by the market.  However, while available, appetite for coverage for larger transactions diminishes.  These transactions are viewed as having heightened risk exposure, including greater scrutiny from regulatory bodies, and the increased likelihood of private plaintiff litigation.  Several insurers (whilst in the minority) are unwilling to provide coverage if a company is internally trusteed, or if the company fails to sponsor a 401(k) in conjunction with an ESOP.  These carriers believe that there is greater impartiality and diversification in companies that have an external trustee and offer a 401(k). 

Similarly, rates have begun to settle for Employment Practices Liability (EPLI) with flat renewals commonplace.  However, EPLI has encountered several headwinds, including state level biometric and privacy laws.  So, whilst coverage may be expanding in the D&O and Fiduciary space, coverage contraction may be experienced by biometric sub limits or exclusions on EPLI policies.  California remains challenging, especially when trying to include Wage & Hour defense costs.  Claims for EPLI generally tend to be high frequency and low severity.

The ‘soft market’ presents ESOP companies with an opportunity to negotiate rate and coverage items with their insurer.  It also ensures that it is easier to navigate coverage for first time buyers of coverage going through an ESOP transaction.  Just as sure as we go from one season to another, the soft market cycle will eventually fade, and market conditions will once again harden.  But for now, we remain in the current softening cycle and strive to make use of this position the market presents.  

In conclusion, as we always have recommended in this column, we stress that buyers of Executive Liability Insurance whose policies are soon expiring develop a strategy of obtaining their renewal terms or indications at least a month in advance to allow them enough time to react to unfavorable terms for whatever reason.

To learn more about Executive Liability insurance protection discussed above, including applying for insurance, please feel free to contact the author Patrick Dixon, pdixon@murrayins.com Program Manager of the TEA endorsed Executive Liability Insurance Affinity Program. Or call toll free, 
1-800-533-5271.