I just spent a sobering couple of days in New York City at the annual PLUS D&O Symposium. The consensus among speakers, which included top insurers, brokers and attorneys, is that when it comes to litigation, the worst is yet to come. And we're not just talking securities class-action (SCA) lawsuits affecting the financial services sector: this unprecedented and hellacious economy is perfectly capable of biting even stable businesses if their vendors, suppliers or other significant business others get hurt.
Try these 2009 projections from a variety of symposium panelists:
- 62,000 company bankruptcies
- 1 in 5 non-investment-grade companies in default
- As much as $500 billion in corporate bonds maturing over the next two years, with no refinancing available
- While more than half of the SCA suits filed in 2008 targeted banks, the trend will inevitably trickle down to other industries as bankrupcies rise
According to an Advisen D&O report released this week, since 1995, about 35 percent of large public companies that filed for bankruptcy were also named in securities class action lawsuits. That number jumped to 77 percent in 2007 and 2008. The problem is exacerbated by the increasing use of Side A-only D&O policies, which respond when a company can't reimburse its directors and officers for defense costs and indemnity payments — usually because the company is insolvent. Given this history, and the above projections, it's no wonder most of the thousand or so symposium attendees were wearing black.
The good news? According to Vincent Dowling of Dowling & Partners Securities (and just about everyone else), the property-casualty insurance industry is one of the few, if not only, financial services industries that's still performing decently in this economy, with adequate reserves and sufficient capacity to arise to the D&O challenge.
More good news? Agents and brokers have an opportunity to really prove their worth to clients by preparing them for the inevitable litigation tidal wave. In an upcoming podcast, Michael Price of Hartford Financial recommends not only the obvious of knowing D&O policy limits, exclusions and triggers, but also arranging meetings between client and insurer so no one is unpleasantly surprised if a claim actually happens.
And an aside of other good news: I was pleasantly surprised at the groundswell of the young and diverse men and women attending this event. One good thing that might come out of this whole financial mess is that young people may be more attracted to insurance as a career path due to its respectable performance compared with other financial services.
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