Few companies are taking steps to insure themselves for directors and officers liability risks outside the United States, according to a recent survey.
The poll of nearly 3,000 organizations conducted by Towers Perrin also found that in the United States, D&O premiums in 2007 declined by an average 14 percent last year–an even sharper fall than the 4 percent drop in 2006.
For large accounts, the decrease was even more significant. Those who had participated in the company's 2006 survey reported an average decrease in premiums of 41 percent in their responses for 2007.
There was one area that ran against the grain, however–the banking industry saw a rise in premiums of 57 percent among repeat participants in the study, according to Michael Turk, a Towers Perrin senior consultant, in his report on the survey.
"This may have been an early indicator of what they probably experienced with year-end renewals as a result of subprime credit issues," he said–although he noted that the banking business also saw the greatest increase in average coverage limits (46 percent), "which may better explain the increase in premiums."
The change in limits presented a mixed bag. Overall, respondents reported decreasing their limits on average by 18 percent, as compared to 4 percent in 2006. However, those repeat survey participants reported an average 13 percent increase in limits.
More policyholders were also obtaining coverage enhancements, with 61 percent of those participating in the survey reporting such a boost, compared to 31 percent who did so in 2006.
"New claim experiences often identify areas where buyers need to enhance the policy language, such as recent endorsements dealing with the partial loss settlements by primary insurers and their effect on triggering access to the excess policy," said Mr. Turk. "Overall, the D&O insurance market remains soft, which is no surprise to underwriters, brokers or risk managers."
Global D&O coverage was identified by Mr. Turk as one of the emerging issues in the market, as claims activity overseas has increased, while countries have changed their laws to allow derivative and shareholder lawsuits. Legal changes, he added, have also expanded the responsibilities of directors.
"Many countries do not permit nonadmitted D&O insurance policies to cover local directors and officers," said Mr. Turk. "In these countries, the nonadmitted worldwide U.S. D&O policy is not permitted to pay claims, regardless of the policy language."
Despite that, only 3 percent of survey participants with operations outside the United States reported having bought separate coverage for those operations.
"We are not surprised by the low percentage of survey participants who have purchased local D&O policies," said Mr. Turk. "Many companies are not yet aware of this emerging issue, and those that are aware are struggling to determine the best approach to address this for their organization. This can be a complicated decision."
Each company, he explained, must determine for itself what its risks are, and how those risks can be covered on a global basis. However they view the issue, Mr. Turk noted, it is one that will have to be addressed sooner or later.
"I believe this issue is only going to get bigger," he said. "It is not going to go away."
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