Corporate Exposure Concern Up

Many U.S. public, private and nonprofit companies increased their Directors and Officers (D&O) liability last year, a sign that corporate directors and officers are concerned about the growing risks around them relative to litigation.

The 2011 Directors and Officers (D&O) Liability Survey, conducted by Towers Watson, also found that more than two-thirds (69 percent) of respondents reportedly received an inquiry regarding the amount and scope of their D&O insurance coverage in 2011. This represents a sharp increase from 57 percent in the firm’s 2010 report.

Based on an October and November inquiry of 401 public, private and nonprofit organizations that purchased D&O liability insurance in 2011, the survey also found that 25 percent of public companies and 14 percent of private and nonprofit companies said they had increased their D&O limits at renewal.

“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,” says 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.”

Once again, regulatory claims topped the list of overall D&O liability concerns, with 81 percent of respondents noting these as a top-three concern, an increase from 78 percent in 2010. More than two-thirds (68 percent) of respondents ranked direct shareholder and investor lawsuits as a top-three concern as well, followed by derivative shareholder/investor litigation (58 percent).

Among other survey highlights:

• The scope of coverage for directors was rated a concern by three out of four (75 percent) public company respondents, yet very few firms (7 percent) actually purchased insurance dedicated to independent/outside directors.

• Nearly two in 10 (19 percent) 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 percent) of the respondents conducted an independent review of their D&O policies in the past two years. Among those that conducted a review, 45 percent used a law firm, while 36 percent 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. 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,” Racioppo said.