D&O Insurance Is a Growing Mandate for Treasurers

By Julie Zawacki-Lucci

Directors and officers coverage has been generating plenty of back-and-forth at peer group meetings. 

Do you know D&O? Chances are if you’re a treasurer who handles risk at your company, directors and officers insurance policies are starting to creep into your purview.

And since most treasurers in NeuGroup’s universe, particularly those members from mega-cap companies, oversee insurance risk management, D&O is a topic that has been generating plenty of back-and-forth at meetings. At a gathering of NeuGroup’s Treasurers’ Group of Mega-Cap companies in the fall, one member said he was still “trying to get my head around” coverage for D&O.

In an effort to help this treasurers and others, NeuGroup went out to members to see where they stand with their D&O efforts. This turned out to be timely as overall insurance premiums are continuing their march higher around the world, according to a report from Marsh on insurance pricing in the fourth quarter of 2018. This includes financial and professional liability insurance rates, with those in the US up for the fourth straight quarter, and by an average of 1.5%.

In the latest quarter, Marsh reports, pricing for public company D&O liability coverage increased 3.4%, with 65% of accounts experiencing an increase. Primary D&O liability coverage was up more than 5%, the largest increase in several years.

The good news is that there hasn’t been a huge increase in claims. In a survey of NeuGroup’s executive treasury groups, generally speaking, the claims experience was rated as favorable over the past five years, with 73% of respondents reporting no claims. Meanwhile, NeuGroup research also shows that the top three ranked aspects of D&O insurance programs are protection of individuals, breadth of coverage, and claims payment rating of insurers.

Here are a few other takeaways from the survey.

Program Structure 

• The total limit of D&O insurance purchased is largely affected by company size. Results showed that half of companies with more than $90B in market cap purchase at least $400M of D&O insurance; roughly 40% of companies with $25B-$90B in market cap buy between $300M and $400M; and 60% of companies with less than $25B in market cap purchase between $100M and $199M.
• For approximately a third of respondents, $100M-$199M of the total limit purchased covers both Part A (which protects the individual Ds/Os when the company is unable to indemnify them); Part B (reimburses entity after it indemnifies a D/O); and Part C (protects entity from claims arising from a securities law violation) respectively. 

Insurers 

• The top three insurer choices for the primary layer of D&O insurance are AIG (42%), Chubb (24%) and Beazley (10%). Although three-quarters of respondents place the primary layer of insurance in the US, another three-quarters said they also have insurance placements in other markets, primarily Bermuda (61%) and London (39%).
• 100% of the total insurance limit purchased carries an A or better claims-payment rating for 91% of respondents. 

Key Features 

• Upper layers of the coverage have a feature whereby some/all “drop down” (to the extent an upper layer provides broader coverage than the layers beneath it) for 74% of survey respondents and always provide Part A coverage.
• With regard to international exposure, 67% purchase a stand-alone “admitted” program for directors and officers based outside the US. Limits purchased are typically for Part A (96%) coverage. 

Claims Experience/Pricing 

• In general, the claims experience was rated as favorable over the past five years, with 73% reporting no claims.
• The premium trend over the last three years has remained relatively flat for a third of respondents, with the most increases being experienced in 2019.
• The top three ranked aspects of D&O insurance programs are 1) protection of individuals; 2) breadth of coverage; and 3) claims payment rating of insurers.