Securing D&O in a hard market.

• Author: Goodwin, Jack
• Position: Insurance - Directors and officers liability insurance industry

Post-Enron, publicly traded companies have little choice but to purchase directors & officers liability in order to ensure filling executive and board positions. The D&O market has tightened, with further tightening expected, as demand is climbing.

While insurance has historically been viewed as a necessary expenditure for publicly traded companies and a safety net for privately held organizations, insurance has not generally been a top priority for many senior executives. Today, however, that's no longer true.

Following more than a decade of market softness, the insurance marketplace is changing rapidly. Property & casualty carriers are tightening contracts, increasing deductibles and raising rates in an attempt to recoup from years of inadequate pricing and from mounting defense costs and increasingly higher settlements and awards. Concern over the fallout of recent accounting scandals has added fuel to the fire.

One line of coverage -- directors and officers liability (D&O) -- is generating perhaps the greatest interest among today's corporate leaders, and for good reason. For public and private held companies, understanding the factors contributing to the current state of the marketplace, combined with ample preparation for renewal, is key to managing the purchase of this essential coverage.

Today's shareholders, employees, regulatory authorities, customers and competitors expect more from corporate leaders than ever before. This conduct and integrity is being scrutinized with new vigor. Directors and officers can be held responsible for actual or alleged wrongful acts, errors or omissions, including negligent advice, misstatements, or improper disclosure. D&O policies are designed to cover defense costs and settlements incurred as a result of such allegations.

In the post-Enron era, publicly traded companies have little choice but to purchase D&O liability, since without it, they would have difficulty finding individuals willing to serve on boards. Furthermore, opting to go without D&O insurance could expose the company and its board to financial ruin.

The Changing Landscape

The D&O market has tightened over the past 12 months, and further tightening is expected as insurers realize the impact of increased securities claims on the policies written during the last decade. Due to an abundance of capacity, intense competition and generally favorable loss trends, policies written throughout the 1990s offered very broad coverage at extremely...