Marsh Finds Growing Demand for D&O Coverage as Claims Rise

“Concerns about the global economy, shareholder action, litigation, and the increasing engagement by regulators are fuelling demand for Directors’ and Officers’ (D&O) insurance,” according to Marsh’s London office. “FTSE 100 companies are buying 20 percent more D&O insurance than they were 12 months ago in a bid to protect their directors from the growing threat of claims.”

Marsh also noted the emergence of a ‘dual market’ for D&O insurance in the first quarter of 2009. While the commercial sector has stabilized to a large extent, the financial services sector is still in the midst of toughening market conditions, galvanized by the fallout from the financial crisis and concerns over recent fraud cases.

Marsh said its “analysis of the first quarter of 2009 reveals that premiums are still coming down for the FTSE 250, although firms with good risk profiles are receiving single digit reductions now as opposed to double digit reductions last year. Conversely, Marsh has observed that D&O rates for financial institutions are increasing on average from 10 percent to more than 50 percent in some cases.”

Matthew Rolph, a Managing Director in Marsh’s Financial and Professional Practice, explained: “The concern of personal liability amongst senior executives has increased immeasurably in the past 12 months. This has led to firms being very pragmatic in their approach to buying D&O cover.

“They are seeking greater assurances about the efficacy of their D&O insurance in relation to the cost and are heavily questioning how much is enough. With the potential threat coming from all sides whether it be from shareholders, regulators, employees or bondholders, directors are feeling very exposed in the current environment.

“The Lloyd’s market has become increasingly favorable as it is seen as a safe haven with the additional support of the central fund. Syndicated risk is also back in fashion: the trend in the past on D&O was not to share the platform with other insurers but that has now changed in response to buyers looking to reduce substantial exposure to any one insurer.

“We are still not seeing a flurry of claims outside of financial services, but contagion is starting to creep into other areas such as construction and manufacturing. We expect that the retail sector will start to see claims in the next 12 months.

“Beyond corporate insolvencies, insurers are also very nervous about capital raising and rights issues. Recent events in the financial world have shown how easy it can be to attract litigation, following the issuance of a prospectus, if the company’s fortunes change after the event.”

Marsh noted that it has issued the following guidance for companies seeking to buy D&O insurance:
— With claims on the rise and the ratings downgrades of a number of key D&O insurers, insurers’ solvency and financial strength should be fully assessed before deciding on which insurers are best to use.
— A well defined purchasing strategy for large D&O programs is now critical. As well as starting insurer discussions early, buyers of D&O liability insurance need to be ready to promote risk differentiation and volunteer varied and thorough underwriting information. Involving senior executives in the renewal phase and leveraging existing commercial relationships should also become a crucial part of negotiations with insurers.

Source: Marsh – www.mmc.com or www.marsh.com

Topics Trends Carriers Claims