Tech Firms Under More Scrutiny, Unhappy with D&O Insurance

With premiums rising and carriers narrowing their terms and conditions, technology companies’ satisfaction with their directors and officers (D&O) liability insurance has plummeted in 2021.

Insurance broker Marsh found in a new study that only about 45% of customers in the sector see their D&O cover as adequate now compared to 84% in 2020. About 35% view their coverage neutrally, up from 13% the year before. A solid 20% said their D&O coverage isn’t adequate versus just 3% in 2020.

Why the change? Marsh suggests that a variety of factors are involved, with a big cause being increased management risks at the same time that public trust in the tech sector is declining. COVID-19 risks are a factor, too, and have contributed to price hikes.

Marsh noted that D&O pricing for tech companies jumped nearly 40% in 2020, while property pricing grew almost 30%. Price hikes hit for cyber, tech errors and omissions (E&O) and casualty coverage, excluding workers’ compensation. D&O insurers are also narrowing their terms and conditions and increasing their underwriting scrutiny, leading to a more selective deployment of capital, according to Marsh.

Marsh’s annual study surveys communications, media, technology and emerging industry risk professionals and executives globally, and 170 responded for its 2021 report.

Among additional findings:

• 37% of respondents said they expect their D&O liability risk to be more of a concern in the next three to five years. Nearly 20% said COVID-19 has worsened that risk.
• About 3% of respondents said “trust” is not discussed within their organizations today, while 64% said they believe that establishing greater trust can help moderate their cost of risk or keep it below that of their peers.
• 72% ranked data security and privacy as a top business risk, while 54% said digital interruption was at the top of their list of concerns.
• 20% of respondents reported that the pandemic has had a significant adverse effect on their revenue or represented an existential threat to their business.
• 63% of respondents are increasing retentions, and 54% are exploring integrated, structured or alternative risk programs as a result of market conditions.

The full report is Marsh’s 2021 Global Technology Industry Risk Study.