Come Clean On D&O Issues, RMs Warned

Meetings between the buyer and insurer are also essential, he said, to elaborate on a risk profile. "The more often we get to see you and understand you, the better it bridges the gap," according to Mr. Pincus.

Douglas M. Worman, president of the management liability division for American International Group in New York, added that "the worst thing" a risk manager can do in attempting to secure D&O coverage is to ignore or gloss over difficulties the company is having with its operations.

Some examples, Mr. Worman told National Underwriter, might be "defections of the board or senior level management. Don't make believe it's not happening, or didn't happen, or nobody's heard of it. Address it head-on," he said.

Other examples include problems with an overseas manufacturing plant or
"any general business issue that is affecting the financials," he noted.

If there is a problem, he recommended that risk managers "talk about it, and talk about the business plan in place to mitigate that problem.Underwriters won't miss it."

Mr. Worman explained that an organization's risk manager should "show that you are ahead of [reform] legislation in terms of board make-up and corporate governance, or a code of ethics that you have had in place for 20 years when they're just now mandating it."

Responding to an audience question as to whether the latest federal legislation to assure company accountability will make the market better or worse for buyers of D&O coverage, Mr. Worman said earlier reform measures passed in 1995 "only made things worse, but the jury's still out on the effect of the latest legislation."

On the same question, Stephen Outerbridge, vice president of the professional lines division for ACE Bermuda Insurance, Ltd., in Hamilton, Bermuda, said "the short answer is that we think legislation is just going to put more focus on boards; more responsibility on committees. I think Corporate America has a lot of scrutiny on it, so for awhile it's going to be tough."

Mr. Pincus added that "we'll see some more people trying to do the right thing by cleaning up their act. I think there will be a group that says, 'Let's adhere to the minimum requirement,'" while another group, he added, will consider this a "great opportunity to take out the broom and the dustpan and clean up [its act]."

"That's the way we hope this regulatory environment will improve underwriters' perspective as it relates to corporate governance and the quality of risks that we're seeing," he said.

A member of the audience observed that the panel's discussions had centered on partnership and communication between the insured and the insurer. However, "what role does that leave for the broker?" he asked.

A risk manager's broker should "understand your risk completely so he can coach you on the hot buttons for underwriters," Mr. Outerbridge said.

The broker's role "stimulates what we're trying to do," he added. The broker's expertise can help in "explaining to us some of your expectations, and it helps in explaining some of the troubles we're up against."

True understanding among all parties leads to smoother transactions and "a better relationship," he said.

Mr. Pincus said that the market is "not a friendly place right now. Times are tough and challenging for buyers, underwriters and brokers."

Having patience and understanding common objectives is important. "Maybe we can meet at a common ground and move forward," he said.

Market pressures, he said, affect all parties.

"We have had internal battles now with our management that we never had before," he said. "The scrutiny from above is such that every deal you're writing, especially with new business, is one that you ask, 'Have I covered all the angles here?'"

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 7, 2002. Copyright 2002 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.