D&O Market is Firming, At Least According To Towers Watson

D&O hard market

Towers Watson recently published its annual D&O survey and to cheer of “soft” market weary underwriters – it’s officially a hard market! It’s funny….calling when the hard market begins and ends is a lot like calling the beginning and ending of a recession – no one feels comfortable doing it. The problem with calling the market and economy, is that while certain generalizations of pricing and terms may be accurate there remain pockets of “softness” by geography and product. For instance, a California based firm with an Employment Practices Liability policy will certainly see a hefty premium increase and more restrictive terms upon renewal, whereas a nonprofit social services risk in South Dakota will probably more stable pricing. Or course, a lot this has to do with the claims trends in certain regions but it also has to do with a general shift in underwriting guidelines.

Regardless of the remaining “soft” pockets the finding in the Towers Watson D&O survey is clear – overall 41% of private and nonprofit D&O policies had an renewal increase in 2012. What makes the D&O and E&O products lines very sensitive to price is the fact that they are judgment rated. Underwriters will all view the risk differently. There are many underwriters, in this market, who feel that private and nonprofit D&O policies have been rate deficient for a number of years. There are others whom have paid out on large bankruptcy claims, employment practices wage & hour claims and regulatory claims and feel that it is time to make adjustments.

Therefore, we urge our agency network to communicate this shift in both pricing and terms to their clients well in advance of renewal. This is no longer a soft market, so here are a fews tips to getting the best deal for your clients:

  1. Create Better D&O Submissions. The days of just submitting an incomplete application and expecting to get a quote are over. Agents need to work with clients to get a complete submission including a fully completed, signed and dated application; most recent audited financials (if available); 5 year loss history; and full details on any major transactions (merger, acquisition, joint venture, capital raise). Note, if the company’s financials are not great, be sure to proactively gather a brief write-up from the insured regarding how they plan to improve their capital position or profitability.
  2. Consider Loyalty To The Incumbent D&O Carrier. Although the incumbent carrier may desire an increase that is not an automatic reason to market and move the business to a new carrier. The most important factor must be coverage since the lack of proper coverage is basis for all agency E&O claims…so don’t let your D&O cause an E&O! Be confident enough to have more than a price discussion with your client so that they understand what they are buying. If coverage is restricted in any way be sure to get the insured to sign-off on a statement that they have read and understand the restrictions.
  3. Limit Named Insureds. These days, D&O policies have fairly broad definitions for subsidiary which usually includes some coverage for joint ventures. Moreover, a D&O policy does not operate like a general liability policy in that there is no need to add additional named insureds or schedule the name of every subsidiary. The more names on the application the more information and work your client will have to do to get a quote. Underwriters are often requesting descriptions of every named entity, financials and other details to make them comfortable adding other entities. It may be more prudent to let the policy language stand as respects who is an insured and only schedule entities that do not meet the definitions of the policy.

At Professional Risk Solutions, we are always working hard to make sure our agents have quotes they can sell. In spite of the changes in the market, we will be able to provide you with terms that work.

 

 

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