Competition is overcoming a need for rate increases and policy tightening among providers of directors' and officers' policies for private companies and nonprofits, say experts.

Greg Flood, president of Ironshore's IronPro unit, says during Advisen's Management Liability Insights Conference in New York, that D&O policies for private companies and nonprofits are “so broad you can drive a truck through them.”

In fact the policies are so broad that “claims don't fall into a trend,” says Shelley Norman, head of private and nonprofit management liability for Chartis in the U.S. and Canada.

“They [claims] come from everywhere,” she adds.

Carriers that once flocked to private and nonprofit D&O as an oasis from the losses in public-company D&O are starting to feel the hurt from claims brought by squabbling families, employees, majority shareholders, customers and competitors alleging such things as misappropriation of funds, lack of fiduciary duty, retaliation and discrimination, and negligence and fraud.

Nonprofits are furthermore subject to heightened regulation and attorneys general looking to make a reputation, adds Norman.

“A lot of folks did not appreciate the severity [of private and nonprofit D&O],” says Bruce Simmons, vice president and product manager for XL Group's private commercial management liability sector.

Simmons says he does not think the insurance line is getting adequate rates despite some scattered reports of low single-digit rate increases in some jurisdictions. Buyers are finding lower rates if they shop around rather than renew, according to studies by Advisen.

With low interest rates, carriers are barely making money with a loss ratio of 65, says Flood, who offers, “I'm interested to see how companies pressure underwriting.”

“Margins are thin,” adds Simmons. “You can't mess up [underwriting].”

And underwriting may only get tougher. Statistics show a large portion of the potential private and nonprofit marketplace—maybe 75 percent—does not purchase D&O coverage. Those not buying are typically small private companies and nonprofits, each with different risk as well as various motivators for making the purchase.

These buyers also have limited resources and finances. Commissions on these policies may not be high—getting them on the books can be challenging, says Norman, who adds that—despite the wide recognition that policies are broad and rates could be higher—it's unlikely anyone will do anything drastic about it.

“It's a hard marketplace to exclude—it's a competitive market,” she says.

The market will not scale back terms. Instead, it will concentrate on price, Flood opines.

Special Reports /

Competition Stifling Need for Rate in Private, Nonprofit D&O

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