U.K. Companies Checking Out D&O Alternatives
NU Online News Service, Nov. 25, 2:20 p.m. EST?The rising cost of directors and officers insurance has prompted risk managers to investigate alternative forms of cover, according to the Association of Insurance and Risk Managers.
That is the main conclusion of a survey of members of the D&O task force, which includes representatives of many of the United Kingdom's largest firms. Risk managers were asked whether or not they had started to implement a range of alternatives; if not, whether they were investigating them or interested in doing so.
The 31 companies that responded included many of the biggest players in the market.
Eighty-four percent of the sample (26 responses) had either started to indemnify directors themselves as a substitute for some types of D&O insurance or were considering doing so. The figure for the use of alternative risk transfer mechanisms such as captive insurers was 81 percent (25 responses); 58 percent (18 responses) were interested in legal cost insurance as a substitute for D&O; 39 percent (12 responses) were considering or, in one case, using bonds or letters of credit as an alternative; and 48 percent (15 responses) were attracted to the idea of a mutual D&O insurance project, according to AIRMIC.
"There's no question from our recent discussions that the recent steep increases in D&O premiums have prompted many risk managers to start using, or at least investigating, alternatives to insurance," said David Gamble, AIRMIC executive director. "One of the reasons cited most often is that underwriters are oblivious to the efforts of those companies that do all they can to reduce the chances of a claim."
Mr. Gamble continued that on a more positive note, "I am happy to report that insurers and brokers are genuinely listening to what we have to say, and there's evidence of more capital coming into the market."
The D&O task force is chaired by Paul Hopkin, director of risk management at the Rank Group. It is expected to make recommendations early in 2004.
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