The directors and officers (D&O) liability insurance marketplace is in a state of transition, characterized by a firming market, according to the “2012 Directors and Officers Liability Survey,” conducted by professional services company Towers Watson.

The market shift is most evident in the private/not-for-profit space, where 41 percent of survey respondents reported an increase in their primary D&O policy premium, up from 18 percent in 2011, according to the study. Twenty-nine percent of public companies indicate an increase in premiums paid for their primary D&O policy, 15 percentage points higher than 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, VP of the executive liability group at Towers Watson and author of the report. “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.”

Perhaps due to concerns over the litigious environment they need to navigate, directors and officers are more likely to ask about the amount and scope of their D&O coverage than last year, the report says. This was particularly true among private companies, where 70 percent of survey respondents report receiving an inquiry as to the amount and scope of their D&O coverage. That’s up from 58 percent in 2011. Eighty percent of public companies received D&O queries, up 3 percent from 2011.

In terms of D&O claims, 36 percent of the survey participants reported claims against their D&O liability policies in the last 10 years, with nonprofits reporting the highest proportion of claims (63 percent). This is a significant figure and noteworthy trend, Racioppo said. “It contradicts popular opinion that D&O claim activity is solely a public company phenomenon,” he said. “Directors and officers of public, private, and nonprofit companies and their organizations all face the risk of litigation.”

Regulatory claims continue to be a major source of D&O liability concern, with 83 percent of the respondents ranking it as a top three concern, higher than all others. Over the past three years, concerns over both regulatory and derivative shareholder/investor lawsuits have increased, with 26 percent and 17 percent, respectively, ranking these as top concerns.

“The increased concern over regulatory litigation may reflect new laws put in place since the financial crisis, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as an increase in whistleblower bounties,” Racioppo said.

The survey also showed that the majority of participants (87 percent) purchase excess limits in addition to their primary D&O limit through at least one additional insurer. When asked to rate the importance of various characteristics of primary and excess D&O, 38 percent rated breadth of coverage as the most important attribute of a primary D&O policy. When considering an excess carrier, the A.M. Best rating of financial strength was ranked most important by 35 percent of respondents, and 35 percent said breadth of coverage was most important.

The survey, which reflects D&O insurance arrangements and purchasing patterns, divided most responses into two categories: public companies (61 percent) and private companies/nonprofits (33 percent). It was fielded online from Oct. 23 through Dec. 7, 2012, and included 325 organizations that purchase D&O liability insurance. The majority of respondents were large organizations holding total assets and/or revenues in excess of $1 billion.

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