Directors and officers liability insurance (D&O) is very much a business line in flux, but Joseph Monteleone, vice president of claims at Hartford Financial Products, a unit of The Hartford Financial Services Group, sees no availability crisis on the horizon.
Speaking at the Risk & Insurance Management Society (RIMS) conference in Chicago today, Monteleone noted that new market capacity from the direct and reinsurance markets is emerging to replace the spate of insurers and reinsurers that has left the volatile and complex D&O line.
D&O claims in 2002 increased significantly in frequency and severity. At the same time, the number of restatements of earnings, a prominent element in many of the severe D&O losses, also showed a strong increase. For this reason, premiums will reportedly continue to increase even as policy terms and conditions grow more restrictive and policy limits get lower, he said.
“Companies are being asked to bear more of the risk – both in higher policy retentions and slimmer insured layers. Hopefully, that will create some additional incentive for companies to practice good corporate governance,” he said.
Monteleone raised some emerging claims issues in the D&O market this year, including:
* Policyholder counsel contentions that restitution amounts are covered by the D&O policy;
* Emergence of “dishonesty” and “personal profit” exclusions that will be triggered by factual evidence rather than a court ruling. Despite
clear-cut evidence of wrongdoing, this exclusion has thus far rarely
been applied because most D&O cases are settled out of court; and
* Curbing settlement costs through more vigorous negotiations with the plaintiffs’ bar.
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