A Snapshot of the D&O Marketplace And The Issues It Is Facing in 2013
Results from the 2012 Directors and Officers Liability Survey points to a definite firming in the marketplace evidenced in the increase pricing experienced in many sectors. This year’s study, the 34th in a series conducted by Towers Watson, culled data from October 23rd through December 7th, 2012. A total of 325 organizations participated based on their companies purchase of D&O liability insurance. The results were then divided into two categories with public companies making up 61 percent and private companies/nonprofits representing 33 percent of the findings.
“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.”
Overall, twenty-nine percent of public companies noted an increase in their D&O premiums on their primary policy, a 15 percentage point increase over 2011 numbers. The biggest market shift, however, was felt in the private/not-for-profit sector, with 41 percent of respondents noting an increase in their primary D&O policy premiums. Statistics show premiums for this sector have risen 18 percent since 2011.
Here are some of the other major points from this year’s look at the D&O marketplace:
- 71 percent of public companies and 50 percent of private companies/nonprofits hold D&O coverage out as the most important coverage in their companies insurance program;
- Increasingly, directors and officers are asking more often about the amount and scope of their D&O coverage than in the past, particularly amongst private companies, where 70 percent of respondents received such an inquiry about their coverage, an increase in 58 percent since 2011;
- D&O inquiries among public companies edged up to 80%, a three-percentage-point increase from 2011;
- Side A policies continue to be integral part of a company’s D&O program with 83 percent of public companies including this in their policy coveragel
- In addition, a vast majority of D&O policyholders, some 87 percent, purchase excess limits in addition to their primary D&O limit which is done through at least one additional insurer;
- 38% of respondents who purchase the excess and liability coverage rated breadth of coverage as the most important attribute of a primary D&O policy.
A look at what is driving D&O claims
One of the biggest trends that Towers Watson continues to see gaining traction is the concern over the rise in regulatory claims which continue to be a significant source of D&O liability. Results from this year’s study show that 83 percent of respondents ranked it as one of their top three concerns, higher than any other issue.
Thirty-six percent of the study’s participants reported a claim against their D&O liability policy within the last 10 years. Surprisingly, nonprofits were the ones to report the highest number of claims, with 63 percent saying some form of claim against their D&O policy.
“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. “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.
Unfortunately, for those who with D&O claims, one in five or 21 percent were ultimately dissatisfied in the manner in which that claim was handled. “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.”