NEW YORK--Directors and officers (D&O) liability insurance premiums increased approximately 33% on average from 2002 to 2003, according to the Tillinghast business of Towers Perrin's 2003 Directors & Officers Liability Survey.

While employee lawsuits were significant for all types of respondents, entities with more than 500 shareholders saw most of their claims come from shareholders. Despite record premium increases during the year, the 2003 D&O Premium Index indicates that the market started stabilizing toward the end of 2003 with premium increases beginning to level off. Tillinghast's survey, which included 2,139 participants, is the 26th in a series of studies on D&O liability claims and insurance purchasing patterns and the only study of its type.

The 2003 D&O Premium Index median and average premiums were the highest ever reported by survey participants, with 70% of U.S. respondents reporting an increase in premiums from a prior policy and only 19% reporting a decrease. Signs of stabilization occurred toward the end of the year, with 62% of U.S. participants with renewals reporting a premium increase in the third quarter, compared with 76% in the third quarter of 2002.

"While many companies are still seeing increases in D&O premiums, the proportion of participants reporting increases declined in the last half of our survey period," says survey leader Elissa Sirovatka.

Since 1974, when Tillinghast developed a standardized premium index for D&O coverage, premium medians and averages have fluctuated with the highest values for both in the period 1994 to 1995. However, 2003 set a new record for both of these measures, with the median premium index for purchasers of D&O insurance up 13% from 2002 and the average up 33%.

The spread between the average and median of premium has increased significantly since 1999. "This marked increase in the spread tells us there are still clusters of organizations encountering much higher premium increases than others," says Jim Swanke, Risk Financing Practice Leader. "Regardless of premium changes, it is important for all purchasers of D&O insurance to examine the scope of coverage they are getting for their money. Given the critical nature of D&O insurance to an organization, it is also important for insureds to review the stability and service level of potential insurers."

Source: Tillinghast Towers Perrin

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