An increasing number of corporate directors and officers are showing more interest in the insurance programs their companies use to protect them against potential litigation, an indication they are growing concerned over the wide range of exposures confronting them, according to an annual survey by global professional services company Towers Watson. The 2011 Directors and Officers (D&O) 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.
The Towers Watson survey found that more than two-thirds (69%) 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% in 2010. The survey also found that 25% of public companies surveyed and 14% 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.
“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,” said Larry Racioppo of the executive liability group in Towers Watson’s Brokerage business and author of the survey. “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.”
Indeed, this year’s survey found that regulatory claims again topped the list of D&O liability concerns overall, with 81% of respondents citing these as a top three concern, an increase from 78% in 2010. More than two-thirds (68%) of respondents ranked direct shareholder and investor lawsuits as a top three concern, followed by derivative shareholder/investor litigation (58%).
Private Companies Hit With Cost Increases
The Towers Watson survey also revealed that nearly two in 10 (18%) private and nonprofit organizations reported a greater increase in their primary D&O policy premium, with only 11% attributable to a primary limit increase.
“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,” said Racioppo. “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 see a market transition as well.
Among other survey highlights:
• The scope of coverage for directors was rated a concern by three out of four (75%) public company respondents, yet very few firms (7%) actually purchased insurance dedicated to independent/outside directors.
• Nearly two in 10 (19%) 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%) of the respondents conducted an independent review of their D&O policies in the past two years. Among those that conducted a review, 45% used a law firm, while 36% 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. There are many factors impacting the D&O arena, and underwriters have begun to push back in the private, nonprofit and public markets. The actions of directors and officers today are being watched closely, and they are looking for certainty that their D&O program provides the level of protection needed in advance of the claim,” concluded Racioppo.
For additional details and research findings, see the Directors and Officers Liability Survey on our website.
About the Survey
The 2011 Towers Watson Directors and Officers Liability Survey — the 33rd in the series — was conducted online during October and November 2011. A total of 401 organizations that purchase D&O liability insurance participated in the survey.