In the following guest post, Nelson Kefauver, Head of Profin Underwriting at Intact Insurance, takes a look at how three frequent industry predictions from the recent past have turned out. Nelson’s comments are specific to the private and non-profit D&O insurance space and not do not refer to the public company D&O insurance claims environment. I would like to thank Nelson for allowing me to publish this guest post on my site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Nelson’s post.
It is difficult to make predictions, especially about the future. That well-known saying has been attributed to numerous people, including Mark Twain, Niels Bohr, and Yogi Berra. When it comes to Private Company and Nonprofit Financial Lines space, how have we done with our predictions on claims trends over the past few years?
Let’s look at some of the more common predictions in our industry of the past few years. We will analyze how such predictions have panned out, checking against the claims data from our Management Liability segment at Intact Insurance Specialty Solutions.
Prediction 1
We will see a flurry of cyber claims spill over and create Directors and Officers (D&O) claims.
Insurance brokers, insurance underwriters, executives, and board members are rightly concerned with this possibility. However, privately held companies and nonprofit organizations have not seen many cyber claims morph into D&O claims.
Was this first prediction accurate? We are off base so far. We have only seen isolated cases of cyber claims turning into D&O claims. There have certainly been a few claims, most notably in the publicly traded space. However, our claim dataset shows little cyber activity spilling over into D&O claims for privately held companies and nonprofit organizations.
Prediction 2
We will see a wave of claims stemming from Covid. These will include, among others, claims related to vaccine mandates, return to the office, hybrid employment, fraud from the Paycheck Protection Program (PPP), and financial distress.
In 2020, the fear of claims from Covid accelerated a firming market into a hard market. Many insurers reduced limits and created lots of complex Covid questionnaires. Some insurers took the opportunity to exit certain classes of business and a few exited financial lines products altogether.
Did prediction two come to pass? We were way off the mark. Our claim dataset shows post-Covid, the claim frequency dropped rather than increased. We certainly have had some claims related to vaccine mandates, but not a market-changing amount. The frequency of employment-related claims overall went down. This is probably because employees are in the office fewer days of the week, on average. We find the lack of claims related to PPP fraud particularly surprising. Either the government is slow on tracking down such fraud, or we are a much more honest society than we believed. I am guessing the former. What about financial distress claims? On a macro-level, Covid assistance money bolstered the financial condition of many companies and organizations and consumers had more to spend. Corporate bankruptcies were at historic lows in 2021 and 2022.
Prediction 3
ESG claims are coming! Beware ESG!
The prediction was that we would see an ever-increasing number of claims involving private companies and nonprofit organizations related to pollution, diversity, social justice, and corporate ethics.
Have we seen a significant amount of ESG claims against private companies and nonprofit organizations? As with the prior two claim categories, this story is not finished, and we could certainly see an acceleration of such claims. To date, our claim dataset does not show a material amount of ESG claims. One tangential area of exception to this is in the Law Enforcement Legal Liability space. Here, claim types that could be categorized as social justice related have seen frequency and severity on a sharp uptake.
It is healthy to compare what we thought might happen in the past to what has occurred. There are plenty of claim trends to be concerned with, but predicting what those problematic claim trends is easier said than done.