UK Directors and Officers Insurance: Market Dynamics and Opportunities 2016

UK Directors and Officers Insurance: Market Dynamics and Opportunities 2016


The UK directors and officers (D&O) insurance market has begun to stabilize following a period of growth. It was worth £199.8m in 2015, down 0.5% from 2014. Rates are softening, with the steepest declines at the larger end of the market due to overcapacity driving competition. On average rates are estimated to be falling by 3–5% per year. However the market is still highly profitable, with the COR expected to lie between 60–80%. Despite rates falling, the value of the market is stable due to increasing penetration within the SME market. D&O cover among large corporate organizations is near full capacity, so now the market has turned its focus on increasing penetration within the SME market – where over a third now hold the product. However, there is still great potential for brokers and insurers to grow in the SME space, by increasing awareness of the product and its importance. D&O claims for insurers are low-frequency but high-severity. The financial crisis has resulted in a more litigious and regulatory society, which has put more directors and officers at risk. Claims are also related to the economic and political landscape, any negative impacts of which may generate a greater frequency of claims. Brokers remain the dominant distribution channel, as clients still seek advice and guidance when purchasing cover. The product itself has remained relatively unchanged, although cyber insurance and events such as Brexit are providing insurers with opportunities to innovate and diversify. Greater change is being seen in how the product is distributed, with underwriting processes moving towards automation. Over the next five years the market is forecast to decline slightly to be worth £194.8m in 2020, as a result of falling rates being marginally larger than growth seen within the SME market.

Key Findings

  • The UK D&O insurance market was worth £199.8m in 2015, and is forecast to decline modestly by 2.5% to reach £194.8m by 2020.
  • 33.8% of SMEs held D&O insurance in 2016, with penetration highest among medium-sized enterprises.
  • 52.9% of SMEs purchased D&O insurance through a broker in 2016.

Verdict Financial’s “UK Directors and Officers Insurance: Market Dynamics and Opportunities 2016” report provides an in-depth analysis of the UK D&O insurance market. It looks at market size and profitability, as well as changes in premiums, claims, distribution, regulations, and opportunities. It provides a thorough overview of the market along with future forecasts.

Reasons To Buy
  • Benchmark yourself against the rest of the market. Ensure you remain competitive as new innovations and insurance models begin to enter the market.
  • Adapt your distribution strategy to ensure it is efficient and still meets customer purchasing behaviour.

A fairly stable market where rates are softening but penetration is increasing
Key findings
Critical success factors
The UK D&O insurance market stabilized in 2015
The market has begun to stabilize as rate reductions offset growth in policy uptake
Large, non-SME companies are mainly responsible for the uptake of D&O insurance
Over a third of SMEs now have D&O insurance
SMEs supplying public utilities and in the mining sector are the top buyers of D&O cover
Insurers and brokers must raise awareness of D&O cover within the SME market
Competition has put downward pressure on rates but the market is still profitable
Claims are influenced by regulation and the economic-political landscape
Regulation has been driving rises in claims frequency and total costs for insurers
The economic and political landscape influences the frequency of claims
Recent UK laws have not negatively impacted the claims market
The UK now has an opt-out model for class actions
The FCA is implementing regulation to encourage whistle blowing
DPAs introduced to the UK allow prosecution of organizations to be suspended
The Insurance Act 2015 has modernized UK commercial contract law
Brokers remain the dominant distribution channel for D&O insurance
Over half of SMEs purchase D&O insurance from a broker
The sale of D&O insurance is less common among provincial brokers
D&O cover is moving towards automation
Businesses require guidance before purchasing D&O insurance
SMEs are seeking guidance from professionals before purchasing cover
D&O cover is poorly understood among SMEs compared to other commercial products
D&O policyholders are most likely to hold other liability insurance products
The product structure of D&O insurance
Most D&O policies are comprised of three coverage areas
Standalone side A policies can be bought as a complementary product to enhance cover
D&O policies have moved from an aggregate to an any one claim model
D&O policy holders are growing more concerned about cyber-related crimes
Brexit has presented providers with an opportunity to diversify their D&O products
The market is forecast to remain fairly stable over the next five years
The market will decline slightly as softening rates counteract growth in SME penetration
Brexit may influence a higher claims frequency and put pressure on rates
Abbreviations and acronyms
Primary and secondary research
Further reading
About Verdict Financial
List of Tables
Table 1: D&O insurance market GWP (£000s), 2011-15
Table 2: SME understanding of commercial products (%), 2016
Table 3: D&O insurance market GWP forecast (£000s), 2011-20f
List of Figures
Figure 1: Summary of the UK D&O insurance market
Figure 2: The UK D&O insurance market declined faintly by 0.5% to £199.8m in 2015
Figure 3: D&O insurance has potential to grow by increasing penetration in the SME market
Figure 4: 33.8% of SMEs hold D&O insurance
Figure 5: D&O policy uptake is dominated by larger SMEs
Figure 6: The mining and public utility supply sector has the highest D&O cover uptake
Figure 7: Over half of consumers purchase D&O through a broker
Figure 8: The sale of D&O insurance is dominated by national and super-regional brokers
Figure 9: SMEs are searching for specialized policies and professional advice
Figure 10: The majority of SMEs holding D&O cover find it easy to understand
Figure 11: D&O policy holders are most likely to hold other liability insurance products
Figure 12: Each element of D&O insurance has a different purpose
Figure 13: D&O policies have moved towards an any one claim model
Figure 14: The UK D&O insurance market is forecast to be worth £194.8m in 2020

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