D&O To Remain Soft Through 2008, Experts Say

Directors and officers liability insurance will continue to experience soft and declining pricing through 2008, as interest in the coverage is growing internationally, according to insurance brokerage executives.

They painted that picture yesterday during a Web seminar sponsored by Chicago-based insurance broker Aon, titled "Breaking News in Directors and Officers Liability Insurance."

The experts who took part in the discussion of the current state of the D&O market and some of the legal issues the market is facing included: Jacqueline Urban, senior vice president with Aon's Financial Services Group Legal & Claims Practice; Jennifer J. Fahey, managing director with Aon's Financial Services Group national D&O practice leader, and David Kistenbroker, managing partner with the law firm Katten Muchin Rosenman in Chicago.

Ms. Fahey said the interest in D&O insurance remains strong and insurers are grudgingly expanding coverage terms while pricing continues to remain soft. She said premiums have dropped 50 percent in the past four years and the current soft market is expected to continue through 2008.

The interest in the purchase of side-A programs (coverage of individual directors and officers who are not indemnified by the corporation's side-B program) has grown, she said. That interest, she noted, involves not just questions about whether enough coverage was purchased but whether too much or too many people are covered by the program.

Insurers are expanding limits to offset price decreases, she said. While primary insurers are seeing decreases, excess insurers are getting hit harder by the market, with decreases especially on coverage in excess of $50 million.

All of this translates into better terms on exclusions, said Ms. Fahey, and intense competition for business--especially new business.

Despite the advantages policyholders are enjoying in the soft market, Ms. Fahey recommended that policyholders take their renewals very seriously and work on strengthening their relationship with their carrier. She said a strong relationship would be beneficial when it comes to claims and other situations.

Internationally, Ms. Fahey said there is a growing amount of litigation over D&O claims. "It's like the U.S., but it is on the upswing." She said there is growing international interest in D&O programs. At this time, the purchases are concentrating on individual executives, but there are purchases to cover a company on an international basis, she added.

Paul Graziano, executive vice president with Aon's national industry and product group, the seminar's moderator, noted that many listeners of yesterday's seminar were registered from Latin America, Canada and Asia.

Discussing D&O market trends, Ms. Urban noted that while frequency of claims has dropped, the severity of those claims is still strong. She expected that trend to continue.

Commenting on why the frequency has dropped, Mr. Kistenbroker said there are several possibilities for this, including a strong bull market producing contented investors and stronger compliance requirements.

A rebroadcast of the Web seminar is available at www.aon.com/webseminars.