As many companies begin to conduct their initial public offerings, (IPOS), the need for Directors and Officers Insurance has only increased in necessity as more companies go public. As a result, the policies have only increased in price as demand skyrockets.
For example, according to Paul Schiavone, head of North America Financial Lines for Allianz Global Corporate & Specialty, a $5 Million policy that had cost $200,000 in 2016 can easily top $600,000 today. “You want to be part of the market, but there are also lots of risks in IPOs,” said Schiavone. “If things don’t go well in a year, you have the investors saying, ‘I want my money back.'”[1]
These changes come from a Supreme Court decision in 2018 that allows simultaneous suits in State and Federal Courts. As a result, the market has tightened its coverage as investors shift to an earn profit mentality. In the past, investors would wait months for a stock to perform, now they are ready to line up for a lawsuit as soon as the IPO is offered. In 2018 alone, 205 IPOs were offered up 14% from 2017, which included the much-anticipated Uber and Lyft.
All these IPOs have resulted in at least 25 lawsuits and more are expected. As a result, Officers are at risk of losing millions of dollars due to a failed IPO and having to face these lawsuits for failure to perform. They are also being required to take on more costs before it goes into effect.
As premiums increase its important that you get the right coverage for the costs you are paying for. Clearly state what you expect from potential IPOs and broadcast it to investors. Costs will continue to increase don’t get caught flat footed.
[1] https://www.insurancejournal.com/news/national/2019/06/18/529691.htm