By Isha Marathe

June 2 - (The Insurer) - Many companies, especially mid-cap ones, could be carrying $10 million to $20 million more in directors and officers coverage than their risk profiles justify, while premium rates and retentions continue to decline, found a joint analysis conducted by The Baldwin Group and Nasdaq.

Average retention levels dropped from $2.5 million to $1.5 million, and the average premium for $5 million in limits fell to $277,985, down from $315,222 in 2024 with technology and healthcare leading all sectors in rate reductions at 15.0% and 13.6%, respectively.

However, benchmarking data suggests many companies, especially mid-cap firms, are still buying far more insurance than they need, the report said.

“This year’s data, like the past few years, still shows rates are coming down at renewal, however, we still believe most companies aren’t deploying their capital strategically,” said Michael Tomasulo, senior managing partner and national practice leader at The Baldwin Group.

“Our data shows that while a company may be purchasing $40 million in D&O limits, their actual claims exposure might be a fraction of that – essentially purchasing limits they may never actually need.”

D&O DISCONNECT

D&O insurance is one of the major costs of being a public company, and its purchase is often highly scrutinized by the board and senior management.

Unfortunately, most public reporting on D&O insurance solely focuses on the limits of coverage being purchased. As a result, companies have a very high-level indication of the market and do not tell you how your actual premium compares to your peers, the report said.

Roughly half of all companies had their overall D&O premiums stay within 10% of the previous year. Only 12% of companies had a rate reduction of over 30%, a drop from almost 20% a year ago. Most companies that had significant rate changes were either under $500 million in market cap or over $1 billion in market cap, as insurers seem to be targeting both the micro-cap space and firmly established companies, the report found.

Ultimately, while the market continues to soften with the overall average rate change in 2024 at -9.7%, the report emphasizes that premium savings mean little if programs remain misaligned with actual exposure, the report said.