Companies might have too much D&O coverage: Report

The ongoing trend of reductions in premium rates and retentions for directors and officers liability insurance because of soft market conditions has led to some policyholders buying up to $20 million more in coverage than they need, according to a report issued Thursday.

Many mid-cap public companies valued at $500 million to $1 billion are buying up to $40 million in coverage. Yet data from the Stanford Securities Litigation Analytics and benchmarking by The Baldwin Group showed that such companies pay an average of $8.2 million to settle a securities class action and additional costs, including legal fees, of $12 million to $15 million, meaning they are overinsured by $15 to $20 million, Baldwin says in its 2025 D&O Benchmarking Report.

“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. 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,” Michael Tomasulo, senior managing partner & national practice leader at Baldwin, said in the news release disclosing the report, put together in collaboration with Nasdaq Inc.

The ongoing trend of soft market conditions continued in 2024, with average retention levels decreasing from $2.5 million to $1.5 million and an overall rate change at -9.7%. The average premium for $5 million in coverage in 2024 also dropped to $277,985 from $315,222.

The biggest rate reductions were in the technology and health care sectors, down 15.0% and 13.6%, respectively, the report said.