Study: U.S. Firms Rely On Worldwide U.S. D&O Policies to Provide Global Coverage

Only 3% of survey participants with international operations have purchased separate Directors and Officers (D&O) liability insurance policies for other individual countries, according to the 2007 Survey on Insurance Purchasing and Claims Trends conducted by Towers Perrin. Forty-three percent of all survey participants indicated that their firms are global.  
 
Global D&O coverage has become one of the most recent emerging D&O issues as a result of increased claim activity outside the U.S. and changing corporate laws in many countries that now permit derivative and shareholder lawsuits. In addition, legal changes have expanded the responsibilities of directors.  
 
“Many countries do not permit non-admitted D&O insurance policies to cover local directors and officers,” said Michael Turk, senior consultant. “In these countries, the non-admitted worldwide U.S. D&O policy is not permitted to pay claims, regardless of the policy language.”  
 
As a result, the worldwide U.S. D&O policy does not provide the global protection that many insureds may believe they have with their D&O policy. There are many other complications as well, such as the need to allocate insurance premiums in some countries and pay local premium taxes.  
 
“We are not surprised by the low percentage of survey participants who have purchased local D&O policies,” said Mr. Turk. “Many companies are not yet aware of this emerging issue. And those that are aware are struggling to determine the best approach to address this for their organization. This can be a complicated decision. A company needs to consider its own distinct situation in each country and its local laws to determine how it wants to structure their D&O insurance program to cover its global risks. This is, however, an issue that must be actively addressed by organizations with global operations. I believe this issue is only going to get bigger – it is not going to go away.”  
 
The Towers Perrin survey, which included a record 2,927 participants, is the 30th in a series of studies on D&O liability insurance purchasing and claim trends, and the most in-depth study of its type.  
 
Independent Directors Liability Coverage – Interest, but Few Sales  
 
While most participants reported they had not purchased Independent Directors Liability (IDL) policies, 30% of private companies and 21% of public firms indicated they were at least considering it. IDL coverage only covers outside directors – there is no coverage in these policies for inside directors, officers or other employees. Interest in IDL policies was strongest for companies with assets of up to $400 million, while the interest was not as great among those firms with assets exceeding $400 million.  
 
“We believe that the interest in IDL coverage will ultimately result in more purchases as independent directors enhance their understanding of the benefits of this type of coverage,” said Mr. Turk. “This coverage may come from stand-alone policies or from enhancements to other policies that provide additional coverage or limit reinstatements for solely the outside board members. But so far there has only been some tire-kicking of this product – with very few actual sales.”  
 
D&O Insurance Market Remains Soft  
 
Premiums continued to slide in 2007, as repeat participants reported an average decline in premiums of 14%, compared to 4% the previous year. Additionally, repeat participants with assets of more than $10 billion reported a whopping 41% decline.  
 
Sixty-one percent of respondents reported an increase in coverage enhancements, compared to only 31% in 2006; 34% reported decreased policy exclusions, versus 8% in the prior year.  
 
“New claim experiences often identify areas where buyers need to enhance