D&O Insurance trends for 2016: this year promises a puzzling risk landscape for director liability.

• Author: Shaw, David
• Position: SPECIAL FOCUS: D&O INSURANCE TRENDS REPORT

D&O insurance is in an interesting place in 2016, with a number of factors--both intuitive and counter-intuitive--potentially affecting premiums, coverages and exclusions. While it's good practice for the board to regularly review its D&O coverage with its broker or carrier, this may be the year to take an even harder look at what's covered, what's excluded, and the specific language surrounding these.

Here's the D&O risk landscape, in bullet points, for 2016:

* Securities Class Action federal filings jumped to 234 in 2015, "a level not seen since 2008," according to NERA Economic Consulting's Recent Trends in Securities Class Action Litigation: 2015 Full-Year Review. And derivative litigation is, by all accounts, on the rise. The plaintiffs' bar is clearly becoming more creative in finding new ways to sue companies and their directors and officers.

* Macroeconomic factors are also in play with the apparent end of the bull market and increased share price volatility, along with other areas of economic volatility, including oil prices.

* There is increased enforcement and pressure to hold executives and directors accountable (as outlined in the Yates Memorandum). As insurance broker Willis points out in its Marketplace Realities 2016: Bringing the Pieces Together, "Executives remain in the crosshairs of public opinion."

* Major cyber attacks continue, and there's little to suggest that they will decline in number or scope. The impact of high profile cyber attacks on share prices has already been made abundantly clear.

* Major mergers among insurance carriers, as they seek new ways to grow, are reducing the number of insurers.

And yet, oddly, D&O premiums are broadly flat to down. Woodruff Sawyer Partner and Senior Vice President Priya Cherian Huskins has written that "Premiums are decreasing for most D&O insurance buyers--but not for everyone. A CIAB survey showed that approximately 46 percent of companies reported a flat renewal and about 22 percent experienced a modest decrease from 1 to 10 percent."

So what should boards make of this puzzling risk landscape, and how should that affect their D&O reviews?

Increased Class Action Filings

Class action filings are up, primarily because anything that causes a stock's value to drop will be looked at carefully by an increasingly creative plaintiffs' bar. As Arch Insurance's Matt Shulman, Executive Vice President and Head of Executive Assurance, D&O and Professional Liability Insurance, points out...