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UK Directors and Officers Insurance: Market Dynamics and Opportunities 2016

UK Directors and Officers Insurance: Market Dynamics and Opportunities 2016


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Executive Summary

The UK directors and officers (D&O) insurance market has begun to stabilize following a period of growth. It was worth GBP 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 GBP 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 GBP 199.8m in 2015, and is forecast to decline modestly by 2.5% to reach GBP 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.

Synopsis

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.

EXECUTIVE SUMMARY

A fairly stable market where rates are softening but penetration is increasing

Key findings

Critical success factors

MARKET DYNAMICS

Introduction

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

PRODUCTS AND DISTRIBUTION

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 GOING FORWARD

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

APPENDIX

Abbreviations and acronyms

Definitions

Brokers

COR

Direct

SME

Methodology

Primary and secondary research

Bibliography

Further reading

About Verdict Financial

Disclaimer

Figure 1: Summary of the UK D&O insurance market

Figure 2: The UK D&O insurance market declined faintly by 0.5% to GBP 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 GBP 194.8m in 2020

Table 1: D&O insurance market GWP (GBP 000s), 2011-15

Table 2: SME understanding of commercial products (%), 2016

Table 3: D&O insurance market GWP forecast (GBP 000s), 2011-20f

To know more information on Purchase by Section, please send a mail to query [@] kenresearch.com
 

Allianz, Marsh, Aon, Arthur J Gallagher, RSA, Aviva, Hiscox, Allianz, Markel, XL Catlin, Travelers, Jewel, AIG.

Directors and Officers, liability, SME, broker, awareness, penetration, competition, regulation.


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