Directors and Officers Liability Insurance Market Firming

  Directors and Officers Liability Insurance Market Firming

Survey finds a D&O marketplace in transition

Business Wire

NEW YORK -- March 14, 2013

The directors and officers (D&O) liability insurance marketplace is in a state
of transition, characterized by a firming market, according to the 2012
Directors and Officers Liability Survey conducted by global professional
services company Towers Watson (NYSE, NASDAQ: TW). The survey found the market
shift was most evident in the private/not-for-profit space, where 41% of
respondents reported an increase to their primary D&O policy premium, up from
18% in 2011.

Twenty-nine percent of public companies indicated an increase in premiums paid
for their primary D&O policy, 15 percentage points higher than 2011. The
survey, which reflects D&O insurance arrangements and purchasing patterns,
divided most responses into two categories: public companies (61%) and private
companies/nonprofits (33%).

“Directors and officers, and their respective organizations, continue to be
susceptible to a much wider range of claimants than in years past,” said Larry
Racioppo, vice president, executive liability group, Towers Watson, and author
of the survey. “Increasing claim activity, including D&O and employment
litigation, coupled with inadequate pricing and retentions in the private and
nonprofit space, are all driving insurers’ need for pricing increases.”

Perhaps due to concern over the litigious environment they must navigate,
directors and officers were more likely to ask about the amount and scope of
their D&O coverage than last year. This was particularly true among private
companies, where 70% of respondents reported receiving an inquiry as to the
amount and scope of their D&O coverage, up from 58% in 2011. D&O inquiries
among public companies edged up to 80%, a three-percentage-point increase from
2011.

D&O Claims

Thirty-six percent of participants reported claims against their D&O liability
policies in the last 10 years, with nonprofits reporting the highest
proportion of claims (63%). “This is a significant figure and noteworthy
trend. It contradicts popular opinion that D&O claim activity is solely a
public company phenomenon. Directors and officers of public, private, and
nonprofit companies and their organizations all face the risk of litigation,”
said Racioppo.

Regulatory claims continue to be a significant source of D&O liability
concern, with 83% ranking it as a top three concern, higher than all others.
Over the past three years, concerns over both regulatory and derivative
shareholder/investor lawsuits have trended upward, with 26% and 17%,
respectively, ranking these as their top concerns. Direct shareholder/investor
suits still register as the greatest concern among survey participants, though
it has trended downward over the last two years.

“The increased concern over regulatory litigation may reflect new laws put in
place since the financial crisis, including the Dodd-Frank Wall Street Reform
and Consumer Protection Act, as well as an increase in whistleblower
bounties,” added Racioppo.

One in five (21%) said they were dissatisfied with the manner in which their
D&O claim was handled, a finding that Racioppo suggested may require a closer
look. “Reasons may be rooted in the complexities of the claim process or the
need for better communication among all parties. The finding belies the
relatively low importance placed on claim-paying reputation when compared with
other aspects of companies’ primary and excess insurers.”

Program Structure

Seventy-one percent of public companies and 50% of private
companies/nonprofits indicated the scope of D&O coverage for their directors
continued to be the consideration that survey respondents deemed most
important in their insurance program. The scope of coverage for their officers
is also a major consideration, with 73% of public companies and 62% of private
companies/nonprofits saying it’s either the most important or second most
important aspect of their D&O program.

Side A policies continue to be integral components of an organization’s D&O
program, substantiated by the 83% of public companies that purchased such a
policy. Further, purchasing patterns for Side A policies among private
companies continued to rise, with 41% including a Side A layer as part of
their D&O program, an increase from 34% in 2011. “What stands out is the
growth in private organizations that maintain a dedicated Side A policy as
part of their D&O program. Such a meaningful increase is further evidence of a
heightened awareness of the product’s importance,” concluded Racioppo.

The survey revealed that the vast majority of participants (87%) purchase
excess limits in addition to their primary D&O limit through at least one
additional insurer. When asked to rank the importance of various
characteristics of primary and excess D&O, 38% rated breadth of coverage as
the most important attribute of a primary D&O policy. When considering an
excess carrier, the A.M. Best rating of financial strength was ranked most
important by 35%, slightly ahead of breadth of coverage (32%).

About the Survey

The 2012 Directors and Officers Liability Survey, the 34th in a series of
studies conducted by Towers Watson, was fielded online from October 23 through
December 7, 2012. A total of 325 organizations that purchase D&O liability
insurance participated in the survey, representing many industry sectors. The
majority of respondents were large organizations holding total assets and/or
revenues in excess of $1 billion. Conversely, firms with assets and/or
revenues under $1 billion were not as well represented, resulting in a smaller
pool of respondents.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services
company that helps organizations improve performance through effective people,
risk and financial management. The company offers solutions in the areas of
benefits, talent management, rewards, and risk and capital management. Towers
Watson has 14,000 associates around the world and is located on the web at
towerswatson.com.

Contact:

Towers Watson
Josh Wozman, +1 703-258-7670
josh.wozman@towerswatson.com
or
Binoli Savani, +1 703-258-7648
binoli.savani@towerswatson.com
 
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