Brokers See More Work, Less Cover On D&O

No matter what line of insurance an agentturns to the story is the same: the only thing certain about thefuture is that premiums are going up. The situation is no differentfor director and officers liability insurance.

Driving increases in D&O, say executives, are the combinedfactors of uncertainty over how much January reinsurance treatyrenewals will increase and the growing number of claims againstcorporations as the economy flounders. Corporations are findingthat merger investments are not turning out as well as they thoughtthey would or accounting changes are causing restatements ofearningsand either event can cause a complaint, one insuranceexecutive said.

At the moment, one thing does not appear to be under discussion:agents commissions. The soft-market years, during which brokersrequested and got increased commission rates, has not turned onitself with insurers asking brokers to take decreases incommissions, industry representatives say.

“Companies realize they are paying brokers for a successful salefor delivering a difficult message. And it is a difficult message,”explained Anthony S. Galban, vice president, D&O underwritingmanager for Chubb Specialty in Simsbury, Conn.

Chubb Specialty, one of the leading writers in this line and asubsidiary of the Warren, N.J.-based company, is seeing increasesin D&O ranging from 20 to 50 percent–and higher in some cases,Mr. Galban said.

Insurance companies are also looking to increase deductibles orexpecting risks to take on some form of coinsurance. Othercompanies are either not writing the business or placingrestrictive terms on the policies, he said.

And if the client is looking for a multi-year deal, it will betough to impossible to find, Mr. Galban said.

“Every renewal will have to be shopped around and that is goingto take time,” said Ellen Kiel, executive assistant director ofgovernment and industry affairs for the Professional InsuranceAgents of New York, New Jersey, Connecticut and New Hampshire.“Generally, looking at the commercial market, there is an enormousincrease in the workload, on both sides”for the producer andcompany, she said.

Companies, Ms. Kiel pointed out, are requiring more informationon their applications and are not letting producers file for aquote without a complete application. The details of theapplication are no longer just the pertinent facts, but a narrativeon the risk and “why this should be an attractive risk to write,”she said.

“Carriers are making it more difficult to apply for D&Obecause they want more current information,” pointed out ShellyKozel, owner and president of Lezok, Ltd., in New York City and apast president of PIA New York.

Adding to the mix is underwriters not knowing what thereinsurance market is going to look like in January, and that isaffecting everything, including D&O, observed Mr. Kozel.

“Part of the problem is reinsures have gone crazy,” said Mr.Kozel. “Many contracts have not been signed yet, and that is nothelping the situation. Nothing has been made easy.”

For small companies looking for D&O, the market is nodifferent than it has ever been, in terms of capacity andinformation, said David R. Doig, a producer with KIA InsuranceAssociates of Bakersfield, Calif., and a spokespers on the subjectfor Insurance Brokers and Agents of the West. Companies want adetailed application, he said, including disclosure of problemswith the Securities and Exchange Commission and r?sum?s of thecorporate executives. What has changed, as is the case for much ofthe rest of the commercial market, is pricing. Where a premiumquote used to be good for 30 days, now pricing is changing on aday-to-day basis, Mr. Doig said.

“In the past, you could do one application and use it with threeor four companies,” Mr. Doig said, explaining that once the agentfound the best quote for the coverage there was time to completethe application for the quoted price. “If a client waits to securea policy, the quote may not be any good.”

Clients can expect to see quotes of $3,000 to $4,000 more for acompany that has less than 50 employees and is privately held, Mr.Doig said. Larger companies, with 100 to 200 employees, are goingto be paying much more, particularly if they are publicly held, hesaid.

And, at least in his business of placing small companies, Mr.Doig said some carriers have asked for minor decreases incommissions2-3 percent, but nothing drastic.

Another driver of increases centers around increased litigationand filing by disgruntled investors.

Mr. Galban, citing his own figures, said claims are escalatingand that, “there is no sign thats abated.” He added that increasedpremium rates are just keeping up with the increased claimpayments.

“This cycle will last a while,” observed Mr. Kozel. He advisedagents who have not been through this kind of market before, “Dontoverreact.”

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, December 3, 2001.Copyright 2001 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.

Contact Webmaster