D&O insurance costs up, but coverage is still vital for risk management

D&O insurance is an essential part of corporate risk management - and unfortunately the cost of this insurance is increasing.

D&O coverage costs rose in 2012 
According to a new survey released by professional services firm Towers Watson, many corporations experienced an increase in their cost of D&O insurance coverage in 2012. According to this survey, 29 percent of responding public companies saw a leap in their premiums last year, compared to 14 percent in 2011. A whopping 41 percent of respondents in the private or nonprofit sector reported they saw an increase in their primary D&O premium in 2012, compared to just 18 percent in 2011.

"Directors and officers, and their respective organizations, continue to be susceptible to a much wider range of claimants than in years past," said Larry Racioppo, vice president, executive liability group, Towers Watson. "Increasing claim activity, including D&O and employment litigation, coupled with inadequate pricing and retentions in the private and nonprofit space, are all driving insurers' need for pricing increases."

Finding the best coverage and the best rates 
A rising premium environment typically sparks conversations that ask questions like, "Do we really need this insurance?" Most likely the answer is "Yes, if we want to retain good directors and officers, not to mention protect the balance sheet of the company."

However, it makes no sense to hang onto expensive insurance policies that are no longer appropriate for a company. Decision makers can instead actively seek new options. Many companies can save significant dollars by taking a fresh look at their approach to insurance risk management. For example, now may be the time to take a hard look at empirical data that might justify reducing total limits of insurance or taking a much higher self-insured retention (deductible). And - perhaps this does without saying - as the renewal deadline approaches, putting together and getting consensus for creative options becomes much more difficult. Refreshing a company's approach to its D&O (and other) insurance programs is always more effective the earlier the process starts.

The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email: phuskins@woodruffsawyer.com.