More corporate directors and officers are interested in the insurance programs their companies use to protect them against potential litigation, Towers Watson finds.
Its 2011 Directors and Officers Liability Survey also found that many U.S. public companies as well as private and nonprofit organizations increased their D&O liability limits last year.
More than two-thirds (69 percent) of respondents reported they received an inquiry regarding the amount and scope of their D&O insurance coverage in 2011, a sharp increase from 57 percent in 2010. The survey also found 25 percent of public companies surveyed and 14 percent of private and nonprofit companies said they had increased their D&O limits at renewal. The survey was based on 401 public, private and nonprofit organizations that purchased D&O liability insurance in 2011.
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"The fact that more directors and officers are asking about their specific programs clearly shows they are concerned about the exposures they face and ensuring their personal assets are protected," says study author Larry Racioppo.
"Whether it is traditional securities class action litigation, M&A-related activity, derivative actions, or threats from a wide range of regulatory or law enforcement agencies, directors and officers—and the companies they represent—are seemingly under siege from a wide array of potential claimants," he says.
Regulatory claims again topped the list of D&O liability concerns overall, with 81 percent of respondents citing these as a top three concern, an increase from 78 percent in 2010. That concern is followed by direct shareholder and investor lawsuits (68 percent) and derivative shareholder/investor litigation (58 percent).
Nearly two in 10 (18 percent) private and nonprofit organizations reported a greater increase in their primary D&O policy premium, with only 11 percent attributable to a primary limit increase, the survey says.
"Unlike public companies, where rates for D&O coverage have either declined or remained relatively flat over the past few years, the private sector has seen some hardening," Racioppo says. "The growing number of claims brought on by employees at private companies, along with an increase in the cost to defend claims, are some of the reasons insurers are seeking to drive rate increases. In the public sector, based on the responses, prices remained relatively stable, but public companies are also beginning to."
The survey also found:
• The scope of coverage for directors was rated a major concern (with 75 percent saying so), yet very few firms (7 percent) actually purchased insurance dedicated to independent/outside directors.
• Nearly 20 percent of survey respondents that filed a D&O claim last year were dissatisfied with the insurer's handling of the claim. This percentage suggests insurers should make claim handling a priority in terms of improving customer service.
• Despite increased interest from their directors and officers, less than half (47 percent) of the respondents conducted an independent review of their D&O policies in the past two years. Among those that conducted a review, 45 percent used a law firm while 36 percent completed the process through a broker.
"After nearly 10 years of diminishing premium levels, 2012 may very well be a year of transition in the D&O marketplace," Racioppo says.
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