The Latest Developments in D&O for Banks

Several recent data points document a slow, steady hardening of the bank directors and officers (D&O) marketplace. We asked over 100 D&O underwriters about their expectations for rate increases or decreases for D&O insurance heading into 2025, and the banking sector was the only industry where a significant number of respondents believed that rates would increase 10% to 30%.

In the 2025 Nasdaq/The Baldwin Group D&O Benchmarking Report, the banking sector was the only sector where respondents reported rate increases year over year, for the second year straight:

We believe several factors have affected the perceived risk profile for community and regional banks and are driving this increase. These include:

• Covid-19 adversely impacting commercial lending portfolios, specifically the commercial office exposures.
• More banks are getting involved with non-traditional banking services such as banking as a service (BaaS), marijuana banking, crypto and more. These activities can lead to more regulatory responses, such as memorandums of understanding, which can drive up insurance premiums.
• Lastly, we have seen an increase in the number of securities class actions (SCAs) against banks, particularly in 2023. These often relate to those banks that went into receivership or were sold at a discount. These SCAs will almost always be associated with D&O claims, impacting loss ratios for the carriers, thus driving up premiums.

Are we powerless against these rising tides? Absolutely not. Many banks are well capitalized and provide predominantly traditional banking services. The key is to separate your bank from others and highlight those qualities. The bank’s management can host a call with D&O underwriters to emphasize this. But it’s important to know what to expect during that process.

Prior to the call, ask the underwriters to share any specific questions they may have for the executive team. Where applicable, underwriters are often looking for leaders to explain how they are addressing:

• Net interest margin construction.
• Deposit base stability.
• Lending concentrations with a focus on office lending.
• Level of uninsured deposits.
• Board activist behavior.
• Involvement in any non-traditional services, including marijuana, crypto or fintech.
• Mergers and acquisitions.

These calls will typically include approximately 15 to 25 D&O insurers, specializing in community and regional bank clients, including the incumbent carriers.

The call should start with the executive team providing a general overview of the bank’s operations, highlighting the past 12 to 36 months. The team should offer a transparent assessment of recent successes, any challenges and explain which strategies have been implemented to remediate those challenges. Providing the questions in advance can help drive the topics included in the overview.

Benefits of hosting a D&O underwriter call can include:

• Capitalizing on the competitive influences of the D&O market by specifically including the incumbent underwriter across the table from their competitors. This almost always generates the best results from a coverage and pricing standpoint. However, this does not mean there is an intent to move the coverage from the current insurer. It simply makes them aware of the competitors’ interest.
• Generating a personal connection with the underwriting community encourages underwriting based in context, versus solely limited information based on applications and public filings. Consequently, underwriters are more likely to provide the benefit of the doubt instead of assuming the worst.
• Limiting the underwriter’s ability to ask for additional information post-call, and thus streamlining the binding process.

By following this process, banks can separate themselves from their peers, highlight their strengths and control the narrative of potential challenges, which will better enable the bank to mitigate the potential impacts of the hardening market.