Pandemic Roiling D&O Marketplace

As the coronavirus pandemic continues to grow, the directors and officers of public and private organizations are facing risks on two fronts: the economic impacts of COVID-19 and litigation. Adding to the challenge is a hardening insurance marketplace.

D&O liability insurance was already undergoing a market correction before the pandemic, after years of poor results and growth in claims. The uncertainties that COVID-19 is bringing to all sectors of the economy will undoubtedly lead to further changes – not only in the form of higher rates, but also tighter terms and conditions, as well as additional exclusions.

These trends will make navigating a complex line of coverage even more challenging, but they are not unprecedented. D&O insurers similarly tightened their underwriting during the financial crisis in 2008, then eased coverage restrictions after the global recession ended.

Times of crisis historically make directors and officers more frequent targets of litigation, as plaintiffs scrutinize organizations’ decisions. Generally, D&O allegations tend to fall into three categories: disclosures, particularly for public companies; mismanagement, especially when companies post results or their share prices drop precipitously; and insolvency. Even when a lawsuit is found to have no merit, organizations still must defend it, and those expenses can quickly mount.

D&O LAWSUITS OVER COVID-19

The Securities and Exchange Commission has encouraged public companies to disclose the impact of the coronavirus on their operations and financial condition, even as the SEC notes the future impact is uncertain. But public statements can get companies into hot water, as recent litigation shows.

Several lawsuits naming organizations and their directors and officers have already been filed with allegations relating directly to the coronavirus pandemic.1 A sampling of lawsuits include class actions against:

  • Norwegian Cruise Line Holdings Ltd. In March, plaintiffs filed a federal securities lawsuit alleging, among other things, that the cruise line made false and misleading statements about the impact of COVID-19 on the company’s operations and business prospects. The lawsuit also cited media reports of leaked internal memos directing the cruise line’s sales staff to lie about the coronavirus.2
  • Inovio Pharmaceuticals Inc. Also in March, plaintiffs filed a securities lawsuit alleging the biotechnology company made false and misleading statements that it had designed a vaccine for COVID-19 in three hours. A research firm called on the Securities and Exchange Commission to investigate Inovio’s statement, suggesting it was “ludicrous and dangerous.”3

Article originally posted on CRC Group Wholesale & Specialty Group 

Commercial Lines Prices Rose +6% During Q1

According to a survey conducted by Willis Towers Watson, Property and Casualty premiums increased by over 6% in aggregate during Q1 which marks the 2nd quarter in a row for such an increase.   As has been the trend for years, Workers’ Compensation was the only line to experience consistent rate reductions during the same time period. However, many presume there is a hard market ahead for comp as well. Time will tell.

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U.S. commercial insurance prices climbed more than 6 percent in aggregate during the 2020 first quarter compared to the year, Willis Towers Watson’s pricing survey for the sector.

Price increases surpassed 6 percent in aggregate for the second quarter in a row, Willis Towers Watson said.

Once again, nearly all commercial lines saw price hikes. Some saw double-digit increases: Directors and Officers liability, excess/umbrella, commercial auto and property.

For most other lines, however, Willis Towers Watson said price changes trended higher at a similar rate to the previous quarter.

Price increases were more muted for small commercial accounts and higher across mid-market accounts, with large accounts nearing double digits, Willis Towers Watson said.

Workers’ compensation continued to be a notable exception with many carriers reporting rate reductions, Alejandra Nolibos, senior director, Insurance Consulting and Technology for Willis Towers Watson, said in prepared remarks.

As well, Nolibos said that the statistics don’t yet reflect reactions to short and midterm impacts of COVID-19, “among them changes in task and employment mix and the economic situation.” He said that continued analysis of emerging data will track those effects for future premium trends.

Willis Towers Watson’s CLIPS survey is a retrospective look at historical changes in commercial property/casualty insurance (P&C) prices and claim cost inflation.

Source: Willis Towers Watson

https://www.insurancejournal.com/news/national/2020/06/09/571470.htm

 

Why James River Insurance Dumped Uber Account

Interesting article published today out of the Insurance Journal by Suzanne Barlyn about insuring Uber.  Not surprisingly, carriers continue to be perplexed with gig-economy exposures.

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A Bermuda-based insurer that recently severed ties with an Uber Technologies Inc. affiliate said on Thursday the risk of providing driver ride-hailing coverage had become too great and that it had mispriced policies during its initial years on the account.

James River Group Holdings Ltd said on Oct. 8 it would cut ties with a unit of Uber, its largest client, and cancel all related policies as of Dec. 31 this year.

Florida was an “outsized contributor” to the insurer’s Uber problems, especially in 2016, given a large number of uninsured and underinsured motorists, said James River Chief Financial Officer Sarah Doran in a call on Thursday with analysts to discuss its third-quarter financial results.

The insurer cut back on its exposure to Uber’s Florida market in 2017, Doran said.

James River boosted its cash reserves by a total of $57 million during the 2019 third quarter. Of that, $50 million was for 2016 and 2017 losses stemming from its Uber account, the insurer said.

James River late Wednesday said it withdrew $1.2 billion in funds held as collateral in a trust created by an Uber affiliate to cover current and future claims.

Insurance is one of the largest expenses for ride-share companies, an issue that many analysts cite as a risk for the ride-share industry’s profitability.

“In Uber, we wrote a new type of risk that originally seemed to be highly profitable,” J. Adam Abram, James River executive chairman and chief executive officer, said in the Thursday call.

But the nature of that risk changed as Uber rapidly expanded into new regions, added tens of thousands of drivers, and moved into other business lines, Abram said. Uber’s businesses now include food delivery and freight.

“Candidly, in some years, we mispriced the risk,” Abram said.

James River’s poor results for its Uber account in 2016 and 2017 spurred it to negotiate a “substantial pricing increase” for 2018 and charge similar rates for 2019, Abram said.

James River bought reinsurance for a third of the Uber account in 2019, but does not expect profits on the account for 2018 and 2019 to offset earlier losses, Abram said.

A new California law designed to limit the use of “gig” workers ultimately swayed James River to cancel the Uber account, despite coverage now being “well-priced,” Abram said.

The law, which goes into effect on Jan. 1, 2020, spells out when companies must treat “gig economy” contract workers, such as ride-hailing drivers, as employees. “We believe (it) will adversely alter the claims profile for ride-share companies,” Abram said.

James River expects to process about 18,500 Uber-related claims while winding down the account, Abram said.