RIMS Study: Fiduciary Liability Costs Soar

By Caroline McDonald

NU Online News Service, Aug. 1, 10:41 a.m.EDT?The premium cost of fiduciary liability insurance,including coverage for trust and pension fund trustees andcorporate directors and officers, is up as much as 150 percent,according to the Risk and Insurance Management Society.

The organization on Wednesday released the Benchmark Survey, anindustry study of commercial insurance market conditions. It alsofound that the number of policies required by risk managers to meetsome insurance needs is not changing and the cost of propertyinsurance seems to be leveling.

Many of the insurance coverage packages that are constructed area function of needing, in some cases, hundreds of millions ofdollars of capacity, Christopher Mandel, RIMS vice president, chiefrisk officer and secretary told National Underwriter.

Those deals, he said, have for the past few years involved manymore providers and underwriters than in the past. The fact that thenumber of policies written has leveled off is an indication thatreduced capacity per provider has leveled off as well, he said.

For example, with a $200 million program of directors &officers or errors and omissions, "you might need a dozen or moreproviders to get to that total amount of coverage, in as much asit's tough to get many players to put up $10 million thesedays."

He said that in the future fewer providers may be required.

"On the other side of the coin," he noted, "property [insurance]has shown a significant leveling off and in some cases a decline.After the two years since 9/11 [2001] that's long overdue," headded. "We've got a long way to get back to where we were."

The typical response to higher premiums by risk managers isrestructuring of their programs, and "maybe taking more appropriatelevels of risk than they have done in the past," he said.

"Let's face it, in a soft market, why not transfer that riskaway from yourself if it's highly affordable? In a hard market it'sa much more difficult issue, it forces a lot of discipline into ourlives that may not always be there in terms of how much risk youcan really retain and how much appetite for risk you might reallyhave, depending on what line of coverage we're talking about," hesaid.

Mr. Mandel added that on a practical level, "when you have todeal with so many more providers, getting the deal done is muchmore time consuming."

The market conditions for the survey were summarized by AdvisenLtd., according to the New York-based RIMS.

Advisen, a provider of specialized information, analytic andbenchmarking tools for insurance professionals, analyzes the surveyresults continuously, offering a dynamic and virtually real-timewindow into the current purchase patterns in the commercialinsurance markets. The results represent data compiled from morethan 750 corporations to date, RIMS said.

"In the past, risk managers had limited visibility into changingmarket conditions, but with the ability to capture information inreal-time, the RIMS Benchmark Survey is providing increased insightand value to risk managers," said Thomas P. Ruggieri, chiefexecutive officer of Advisen in a statement.

"This kind of on-demand information for the insurance industryrepresents a shift in how professionals interpret and react tomarket conditions," he said.

Mr. Ruggieri noted, "As insurers try to mitigate the risk oflawsuits against pension fund trustees whose portfolio values havebeen ravaged by underfunding, questionable loans to sponsororganizations, corporate scandal, bankruptcy and an anemic economy,the fear of a tidal wave of litigation, similar to the trend insecurities litigation, is driving up premiums for this line ofinsurance coverage by as much as 150 percent."

He said that policy data produced by the survey also indicatesthat fiduciary liability retentions have increased by as much as500 percent since 2002.

Directors and officers liability insurance also continues torise, with premiums up over 200 percent against last year,according to RIMS. The survey data shows that D&O premiumscontinue to show extraordinary increases for the third straightyear.

Other insurance categories, which have been experiencingaccelerated costs over the last months, continue to see lowdouble-digit growth, while some costs, like retentions ordeductibles in property insurance, remained unchanged.