While directors and officers insurance pricing is viewed as competitive, it does not mean insurers are giving away the shop to get business, say insurance executives.
Carol Zacharias, senior vice president and counsel for ACE Professional Risk in Philadelphia, said underwriters are examining individual accounts carefully and doing their research of the boards in order to understand their principals and how the board works. Each board, she said, is assessed and priced individually on its own merits.
"There are some companies that have great boards and they will be recognized for that," she observed. "Good underwriting is more critical today than ever before."
New regulations have made it more difficult to underwrite boards, she said, and it has also made the board's job more complex than it was 20 years ago. But good governance by a board is always a firm basis to work from, and "it makes for a better risk for an insurance company to take."
If there is one positive from all the new regulations, Ms. Zacharias added, it may be that the care executives take now will prevent unwitting mistakes in the future.
"But we don't know if it will prevent intentional violations of the law," she admitted, adding that the regulations "do not make clear what are intentional and unintentional acts."
Tony Galban, senior vice president, directors and officers product manager for Chubb, Warren, N.J., said insurers have built their expertise in anticipating trends and watching risks. There is more to be learned from filings, and studying them gives an underwriter an understanding of the board's dynamics.
Mr. Galban also said there are more tools available to spot suspicious activity on a board. Underwriters, he added, have not relented in meeting with clients and discussing the workings of the board to understand their capabilities and personality. This is an improvement from the past, he said, when carriers met less frequently with clients, did not review filings or utilize other diagnostic tools.
For those producers who are not well educated in D&O, Mr. Galban said it is very important that they understand "what they are getting into."
"Directors and officers [insurance] speaks to the highest level of the customer: senior executives," said Mr. Galban. "It is extremely unstandardized. It requires a lot of technical work to understand the terminology and it is not a good coverage to just dabble in."
He noted, too, that producers need to be mindful of reviewing with clients the different events that may occur in the course of a board's business–bankruptcy, guilty pleas in criminal cases, restatement–anything and everything that could affect corporate governance.
"Not enough customers have been put through this exercise of 'Let's talk about these five unthinkable scenarios,'" said Mr. Galban. The customer "needs to understand how this product will respond if these things should happen."
"That work requires some fairly high level of access and some level of concentration," said Mr. Galban. "We have a long way to go as a business to get that at a really good level."
"There are some companies that have great boards and they will be recognized for that. Good underwriting is more critical today than ever before."
Carol Zacharias, SVP & Counsel, Ace Professional Risk
"Directors and officers [insurance] speaks to the highest level of the customer: senior executives….It requires a lot of technical work to understand the terminology and it is not a good coverage [for producers] to just dabble with."
Tony Galban, SVP, Chubb
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