D&O Brokers Find Clients Buying More; Carriers Eager To Help

There is good pricing and coverage news coming out of a competitive directors and officers liability insurance market, but not for everyone, according to brokers.

“The thing that clients are interested in hearing is that pricing is moderating,” said Susanne Murray, executive vice president, D&O practice leader for insurance broker Hilb, Rogal & Hobbs Co., based in Richmond, Va. “It is not the sole decision-making point in the process,” but customers definitely do consider price in their D&O buying decisions, she said.

Ms. Murray said that in the current D&O market environment, a publicly traded company without a prior claims history can expect to see a decrease of 15 percent in its premium, while small and private companies can see reductions as much as 25 percent she said.

Still, Ann Longmore, senior vice president, D&O practice leader for London-headquartered Willis Group, said, “This is a fragmented market.” According to Ms. Longmore, “Some segments remain in a hard market, while others are soft.”

In particular, she said that while nonprofits and private companies are seeing softening, the exception is in the health care industry, which is still seeing some hardening.

The financial institutions segment is another area where pricing remains hard, with increases running in the 10-to-40 percent range.

“There is still upward movement there, and retentions are on the rise,” she said. “If there should be one or more claims for these risks, then that could have a serious impact on rates.”

Ms. Murray said softer pricing generally is the result of an increase in competition, as carriers who are unencumbered by previous claims history enter the marketplace to try their hand. But it is not a situation that existed in the soft-market conditions of the 1990s, where naive capital and inexperienced underwriters ran the shops, she said.

“The people are very familiar with D&O and come into it with lots of experience,” she said. She added that another advantage the new carriers bring to the table is an unencumbered claims history, unlike more traditional carriers that have been at it for a while.

Ms. Murray noted that the softening market allows clients the opportunity to add coverage and to add layers to their policies. For instance, as prices drop, a client with limits of $75 million may look to add another $25 million layer, she said.

“They are looking to consider buying a little bit more,” she said. “The largest corporations may not, but many other companies are because pricing is more attractive.”

In this current market environment, carriers are also willing to discuss splitting retentions among parent companies and their subsidiaries, she said. A larger parent company, she said, may keep a $500,000 retention, while its subsidiaries assume only $250,000 of risk. For customers, she said the break-up in retentions allows for a more accurate alignment of the risk.

“This is something carriers are willing to do now that they were never willing to do before,” she said.

For those market segments that are still experiencing hard market conditions, Ms. Longmore said one strategy brokers are using is to avoid moving the primary layer of coverage on an account and instead move the excess, because the excess is easier to place.

She said the primary layer may see flat to some increase in premium, while the excess would get better terms and conditions.

Continuity is an important point here also, she noted, adding that too much re-shuffling of an account “can be a disaster.”

With the new carriers coming into the market, one concern clients have is the underwriter's staying power. The executives say customers want a carrier who is committed to the market and will be there.

The more savvy client, said Ms. Longmore, wants to know if carriers have any solvency issues.

“[The insurance buyer] wants to be able to tell the board [that the carrier] will be there if there is a claim,” she said.

The bottom line for many customers is to see a willingness by the carrier to remain committed to the D&O market for the long haul.

“What it comes down to is getting and keeping that market,” said Ms. Murray. “Those who say they are in it for the long haul must want to stay in it for the long-haul. Carriers want to make money, but they have to show their own, personal, value-added willingness to clients, and that is one way to do it.”

Carriers are also addressing the unique risk needs of the client, she said, by expanding the definition of the insured, going beyond just directors and officers, and including “the functional equivalent” of a chief officer who may have a different title. The coverage can also be extended to risk managers, general counsels, and directors of investor relations and advisory board members.

“In the past, maybe that was not a worry, or the individuals had to get it on their own,” she said, explaining that lawsuits can be more sweeping now and include those who were once not considered responsible for corporate decisions.

Both Ms. Murray and Ms. Longmore noted that corporations seek to get as much coverage as possible to make sure that if there is a big claim, the suit does not burn through the layers. Individual executives are also looking at A-side coverage so if the corporate policy does burn through, they have something to fall back on. (A-side coverage protects directors and officers in situations when a company is unable, unwilling or legally prohibited from indemnifying them. See NU, Oct. 18, page 22.)

“If the company can't protect you, there is only insurance that can protect,” Ms. Murray said.

Ms. Longmore noted that D&O is one line that is not a commodity product, but instead is relationship driven. If customers remain good corporate citizens, they are “rewarded for good behavior.” By the same token, the insurer must “remain solvent and committed, or they will not be business partners anymore.”

Reproduced from National Underwriter Edition, October 28, 2004. Copyright 2004 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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D&O Brokers Find Clients Buying More; Carriers Eager To Help

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