More organizations inquiring about D&O liability insurance: survey

Directors and officers of organizations responding to a recent survey were more likely to inquire last year than in 2011 about the scope of liability insurance coverage, a Towers Watson survey suggests.

The New York-based professional services firm recently released results of a D&O liability survey, in which nearly two-thirds of non-profit respondents reported having made a D&O liability claim, most of them in employment matters, over the past 10 years.

Towers Watson, whose services include risk management consulting, conducted its 2012 survey online last fall, querying 325 organizations that purchase D&O liability insurance.

“For the better part of the past decade, with certain industry exceptions, it was fair to categorize the overall D&O market as favourable,” Towers Watson stated. “Such conditions were due in part to an influx of new capacity.”

Respondents were asked whether, during the past 12 months, a director or officer of their organization had inquired as to the amount and scope of D&O liability coverage. They broke out the results by 2012 and 2011 and by public and private/non-profit organizations.

In 2012, 80% of respondents from publicly traded firms said a director or officer had made such in inquiry, while 70% of respondents from privately-held and non-profits said yes. By comparison, in 2011, 77% of respondents at publicly-traded firms said yes and 58% of private/non-profits said yes.

Towers Watson noted 61% of respondents were public firms, and the majority of respondents also had assets/revenues in excess of US$1 billion. Organizations with assets/revenues of less than $1 billion were not well represented in the survey, Towers Watson noted.

More than a third (36%) of respondents reported making claims against their D&O policies over the last 10 years, with 63% of non-profits reporting claims.

“In our view, such a significant figure is noteworthy because it contradicts popular opinion that D&O claim activity is a public company phenomenon,” according to the report. “To the contrary, directors and officers of public, private and nonprofit companies and their organizations all face the risk of litigation.”

The report added of the non-profits who made claims, 85% reported an employment-related claims over the last decade. Most public companies who reported claims said they were sued by investors or shareholders, who owned their stakes either directly or through derivatives.

The survey also asked for details on policy limits, reporting answers by asset size and by whether the organization is public or private.

For example, of the 80 respondents with asset sizes of $10 billion or more, the median policy limit was $165 million while the average policy limit was $182.1 million. All figures are in U.S. dollars.

Policy limits tended to be smaller for private organizations.

For example, of the 12 respondents from private organizations with assets of less than $250 million, the median policy limit was $5 million.

Towers and Watson also reported the policy limits of survey respondents by business class. For example, in automobiles and transport equipment, the mean policy limit was $181.3 million while the policy limit in the third quartile in that category was $315 million. For charities and non-profits, four respondents reported their policy limits, with a mean of $31.3 million.

Respondents were also asked whether their organizations purchase D&O liability insurance that covers only independent or outside directors. Only 2% of private/nonprofits and 9% of public firms said yes. An overwhelming majority – 86% of private/nonprofits and 84% of public firms – said no, and that no such coverage was  being considered.

Six per cent of private/non profits and 4% of public firms said their policies did not cover only independent or outside directors, but their organizations were considering such coverage.

Nearly seven in eight (87%) of all respondents said they purchase excess coverage in addition to their primary coverage.