A divergence in D&O insurance pricing in recent years, which saw carrier competition in excess layers driving overall policy premium drops as primary prices rose, may be starting to disappear, according to a broker report.

Aon’s Financial Services Group published its pricing index for D&O insurance for publicly traded companies Tuesday, revealing that fourth-quarter 2013 pricing was down 2.0 percent overall compared to fourth-quarter 2012. In addition, primary policies that renewed in both fourth-quarter 2012 and fourth-quarter 2013—at the same limit and retention—saw price increases of just 0.7 percent on average, Aon said in a report on the index.

That 0.7 percent compares to figures like 5.7 percent for the third quarter of 2013, and 8.3 percent in the second quarter.

“Given that the D&O Index [overall] is relatively stable, this change in course on the primary (closer to flat) leads us to believe that the carriers’ attitude on primary versus excess pricing appears to be more in sync than in recent history,” the Aon report says.

Looking at primary pricing another way, Aon reported that the total number of clients reporting primary decreases, while still in the minority, ticked up to 15 percent in the fourth-quarter, compared to 13 percent for third-quarter 2013 and just 6 percent in the second quarter.

“The landscape appears to be changing in that for the time being, flat primary renewals may be considered a ‘positive’ result…from the carriers’ perspective,” the report says.

For the year, Aon reported that nearly 95 percent of all primary placements renewed with the same carrier even though price increases averaged out to 5.5 percent across the four quarters.

Referring to information from Aon’s Global Risk Insight Platform (GRIP), the report suggests that D&O carriers are not distinguishing themselves on coverage or capacity in client’s minds. Instead, 60-70 percent of clients said they valued the relationship with an incumbent carrier above everything else. While almost none said they sought coverage or capacity that’s not available elsewhere, and only about 10 percent said niche market or industry expertise was a factor in choosing a carrier, over 30 percent selected pricing as the reason for their carrier choices.

A later section of the report suggest that that 30 percent might have new alternatives to consider as new entrants that have been building management liability teams make their presence known.

“For the first time in many years, some of this new capacity will be focused on the primary D&O space as opposed to simply playing in “commodity” excess layers.

Noting that the overall increase in capacity and the potential new players in primary layers, Aon foresees “a stable to improving D&O marketplace for customers” in 2014.

“Incumbent carriers should consider flat to be a winning proposition given these dynamics,” the report concluded.

Aon’s fourth-quarter recap also reports on:

• D&O price changes by sector, with utilities seeing 4.0 percent increases overall (primary and excess) and telecommunications benefiting from an 18.3 percent decrease, on average.
• Changes in limits, with clients buying 5.5 percent more limits in fourth-quarter 2013 than fourth-quarter 2012.
• Changes in deductibles, with clients retaining 18.6 percent more in the quarter.

In addition, in brief comment on claims paying behavior, the report makes note of “some new and aggressive coverage positions by some primary carriers on derivative claims” that Aon has observed.

About Aon’s Quarterly D&O Pricing Index

Overall, Aon’s D&O pricing index—which tracks D&O premiums relative to a base year of 2001—came in at 0.98 for fourth-quarter 2013.

The D&O pricing index is comprised of policy information on over 8,275 program for publicly traded companies between Jan. 1, 2001 and Dec. 31, 2013.

The index represents a weighted average cost of $1 million of D&O insurance (total premium/total limits). The average rate per million of limit includes D&O placements, Side-A only placements and Side A DIC (difference-in-conditions) placements.

The base year (2001) is the average price per million for $1 million of coverage costs for the 2001 calendar year.