Brokers See More Work, Less Cover On D&O

No matter what line of insurance an agent turns to the story is the same: the only thing certain about the future is that premiums are going up. The situation is no different for director and officers liability insurance.

Driving increases in D&O, say executives, are the combined factors of uncertainty over how much January reinsurance treaty renewals will increase and the growing number of claims against corporations as the economy flounders. Corporations are finding that merger investments are not turning out as well as they thought they would or accounting changes are causing restatements of earningsand either event can cause a complaint, one insurance executive said.

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

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

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

Insurance companies are also looking to increase deductibles or expecting risks to take on some form of coinsurance. Other companies are either not writing the business or placing restrictive terms on the policies, he said.

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

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

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

“Carriers are making it more difficult to apply for D&O because they want more current information,” pointed out Shelly Kozel, owner and president of Lezok, Ltd., in New York City and a past president of PIA New York.

Adding to the mix is underwriters not knowing what the reinsurance market is going to look like in January, and that is affecting 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 not helping the situation. Nothing has been made easy.”

For small companies looking for D&O, the market is no different than it has ever been, in terms of capacity and information, said David R. Doig, a producer with KIA Insurance Associates of Bakersfield, Calif., and a spokespers on the subject for Insurance Brokers and Agents of the West. Companies want a detailed application, he said, including disclosure of problems with the Securities and Exchange Commission and r?sum?s of the corporate executives. What has changed, as is the case for much of the rest of the commercial market, is pricing. Where a premium quote used to be good for 30 days, now pricing is changing on a day-to-day basis, Mr. Doig said.

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

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

And, at least in his business of placing small companies, Mr. Doig said some carriers have asked for minor decreases in commissions2-3 percent, but nothing drastic.

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

Mr. Galban, citing his own figures, said claims are escalating and that, “there is no sign thats abated.” He added that increased premium rates are just keeping up with the increased claim payments.

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

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

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Brokers See More Work, Less Cover On D&O

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