There has been considerable discussion about a market turn (hardening) in the D&O (directors & officers) liability insurance market, but this is only happening in segments and for organizations that are exposed to significant losses from the economic crisis. Financial institutions are obvious examples of organizations that will attract underwriters scrutiny and likely see significant increases and tighter terms. We are seeing rates increases for financial institution D&O, both public and private, and some increases in public company D&O. However, private company D&O and non-profit D&O remain competitive.
- Given the volume of lawsuits and the possibility of other large settlements, insurers are skittish in the extreme, and not only regarding D&O coverage; errors and omissions, fiduciary liability, and employment-practices liability are also under scrutiny and are similarly tightening.
- The financial firms named as defendants in a securities class-action suit last year represented … nearly a third of all large financial firms.
- For industries outside of financial services, it's a completely different story. D&O insurance premiums remain largely unchanged, with the same coverage terms, conditions, and limits.
The article notes a critically important point about D&O insurance:
Directors and officers on the losing side of a securities class action are personally liable financially for both legal defense costs and the ultimate payout or settlement.
Buyers and their representatives should not lose sight of the fact that the primary purpose of D&O is to protect the personal assets of the directors and officers, and Ds & Os should ensure that their protection is maintained. In addition, concerns about exposure are not one way: insurer solvency is very much on the mind of buyers and their representatives:
We're counseling clients to reduce, reallocate, or remove from their D&O programs any insurance companies that have been downgraded by the rating agencies in the past 12 months - says Lou Ann Layton, managing director at insurance brokerage Marsh.
As with most parts of the insurance cycle, underwriters will look closely at D&O renewals and try to gauge exposure. The market process for D&O is working, as prices for higher risk accounts are rising, and other accounts, perceived by underwriters as presenting less exposure, are not. The resulting renewal will reflect the market’s conclusion.
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