Roughly a year after carriers started unveiling directors andofficers insurance policy enhancements to cover costs of informalregulatory investigations, the add-ons are now widely available,and the price of the coverage is dropping, brokers say.

The first generation of informal-cost coverage came when Chartisincluded "pre-claim inquiry" coverage in a D&O product calledExecutive Edge last May. Before that, only formal investigationsagainst directors and officers were covered.

Prior to the Chartis coverage,"[someone] had to be named in an SEC (Securities and ExchangeCommission) investigation," says Phil Norton, vice chair for theMidwest Region at A.J. Gallagher in Chicago. With informal-costcoverage, "the industry is trying to go backwards in time—to startcoverage earlier," he says.

As it has evolved over the last 12 months, the pre-claim inquirycover for individuals is now quite broad, says Carolyn Polikoff,senior vice president and leader of the Corporate & ExecutiveProtection practice of San Francisco-based broker Woodruff-Sawyer."If you as an individual receive any type of request for aninterview from any type of investigative body, even if you are notthe target of the investigation, this product will start paying forany type of legal costs you incur. It doesn't have to be a formalsubpoena."

Louise Pennington, managing principal and head of clientdevelopment in New York for Integro Insurance Brokers, agrees thatthe marketplace is generally "now following" the premise forinformal investigatory coverage for individuals as originallypresented in the Chartis' product. "That is a significant changefrom last year," when the product was first introduced, shesays.

ON THE PRICING FRONT

How has this pre-claim inquiry cover for individuals affectedthe pricing of policies?

"Attempts made by the marketplace to charge significantly morefor the coverage have not worked as the insurers have hoped," saysPennington.

Carriers "were looking for a premium, because it certainly wasmore coverage than had previously been provided," but thecontinuing soft and competitive market forced most of theadditional premium out.

"Last summer, there were always multiple quotes beingreceived—with and without informal investigatory coverage—anddefinitely different pricing for each," Pennington says. "Whilecarriers are still trying to do that, I just don't think thismarketplace is letting them get the additional premium they werelooking for," she says, suggesting that lower discounts ondeclining overall D&O program premiums are more likely.

Traditional risks without much claims activity might be seeingdouble-digit decreases before adding the coverage. So to includeit, "perhaps the carrier wouldn't give them quite the equallysignificant discount," she explains.

Norton and Polikoff add that in their experience pricingdefinitely has come down since last year when Chartis was seeking15 percent additional premium.

"They were sticking to their guns on that strategy through thebeginning of this year," Norton reports. "Now we're starting to seethat constrict. Sometimes it's only 5 percent," he says, referringnot just to Chartis, but to all the major competitors in theprimary D&O market that have tried to match the coverage.

Polikoff reports that some carriers now even offer theseendorsements at no additional premium, putting the upper end ofcharges at a 10 percent.

POINTS OF DIFFERENCE

Unlike Chartis' Executive Edge, the competitors—Chubb, ACE andArch among them—have not delivered the key features of pre-inquirycoverage in entirely new policy forms, instead opting to add themby endorsement, Norton says.

Asked to describe other distinctions in coverage language fromcarrier to carrier that they highlight for clients, brokers saythey see few.

"As a salesperson, it really hasn't mattered what the nuancesare, as long as the coverage is good. And the coverage is good. I'mrecommending it," Norton says.

"These coverages are not different enough for any buyers toperceive. I view them as all essentially the same," he says.

But Rob Yellen, chief underwriting officer of the ExecutiveLiability Division of Chartis, says "pre-claim inquiry" coverage,while not trademarked, is unique to his company.

Others may broaden the definition of claim, but they have notfixed the way the insuring clause works to trigger coverage. "Youstill need a wrongful act. You might need to be a target," he says,pointing to "one of the most fundamental problems of D&Ocoverage" and advising that clients have white-collar defenselawyers, in addition to brokers, help them work through coveragedifferences.

Norton insists the differences are not that meaningful. "WhatI'm looking for is how much are you going to charge and what elsehave you done for my client historically. What's your position onthe program? These factors will be more important."

Polikoff agrees. "They're pretty much covering the same thing.If you get any type of request from any enforcement body, they'llcover the cost of having an attorney sit with you.

GROWING AWARENESS? YES. GROWING BUYER APPETITE? MAYBE

How aware are clients of this pre-claim coverage—and how eagerare they to buy it?

"I won't say it's a commodity at this point, but every publiccompany is being offered it," says Polikoff. "Whether they buy itisn't a question of one coverage being better than another. It'sare they willing to pay for it if the carrier is charging for it,"she says.

Pennington agrees that "clients are very much aware of theavailability of this type of coverage. I'd be shocked if mostclients don't say they are not only informed about it, but areseeking it out." Indeed, in her view, "the breadth of the coverageis certainly worth the incremental cost" to the buyers sherepresents.

Polikoff, however, says it's "a difficult sell," noting that"the number one thing clients ask is, 'How likely is this,'"referring to those that haven't yet been under the glare of SECscrutiny. Those that have say the cost of having a attorney duringan SEC interview "was actually not that much," she says, addingthat for large public companies, much if not all the cost will fallwithin retentions that  can be as high as $1 million.