Boardroom Insurance Spikes in 2003

The sudden increase in premiums for director and officer liability insurance (D&O) is proportional to the spike in the number of corporate governance scandals that cover the headlines.   Last year, D&O premiums were up 29%, according to a survey conducted by actuarial consulting firm Tillinghast-Towers Perrin reported by the Associated Press.

In fact, 2003’s median and average premiums were the highest ever reported by the 2,139 participants in the poll, surpassing the previous record premiums paid in 1994 and 1995.   Overall, seven out of 10 respondents reported an increase in their D&O premiums, and only 19% reported decreases.   To further rub salt in the wound, increased premiums bought less coverage as policy limits decreased and deductibles increased.

For the ninth year in a row, the highest median premiums were reported by:

• durable goods companies
• mining and agriculture firms
• merchandising companies
• banking institutions.

Leading the list for the highest susceptibility to D&O claims in 2003 were education, health services and utilities companies   Utility companies are new to the susceptibility list, replacing the perennial banking industry.

Tillinghast predicted that while premium increases will stabilize overall this year, some industry sectors will still experience increases of 30% or more in 2004, and the scope of coverage will continue to be narrowed.

D&O coverage protects directors and officers from lawsuits for issues such as securities fraud, paying their litigation costs and often settlement costs or damage awards.