Premiums for directors' and officers' (D&O) cover have soared as a result of recent corporate scandals, claimed a new report from Datamonitor.
It said the increase in corporate accountability and the appetite of shareholders to claim against company directors had exposed insurers to potentially severe claims, forcing higher premiums and more stringent conditions on the provision of D&O cover.
To purchase the report, UK Commercial Liability Insurance 2004, go to the ‘Research and Statistics' section of the Insurance Times website.
“Corporate accountability has never been more stringent and insurers are realising the potential severity of claims they could face,” said Datamonitor financial services analyst and report author David Stephenson.
Datamonitor said it estimated the D&O market to be worth between £300m and £400m in 2003.
The report said that although premiums were rising at a slower rate than in 2002, the market still grew by between 50% and 100% in 2003.
It also found that D&O insurance providers were wary of providing cover to companies with a high risk of shareholder action, with US-listed companies particularly falling foul of the improved risk selection.
Looking at 2004, the report said there was evidence that rate rises had started to level off for smaller businesses with lower levels of risk.
“The Enron and WorldCom affairs really made D&O insurers sit up and take notice,” said Stephenson.
“Premium rates have picked up rapidly amid concern that future claims volume will become more substantial. Companies with US exposure are facing particularly large premium rate increases whereas UK-domiciled companies are not being hit as hard, largely due to evidence which suggests corporate governance in the UK is much better by comparison.”
But he warned that events such as the collapse of Marconi, and the Penrose report into Equitable Life, which revealed company mismanagement, would have an effect on D&O rates for UK companies.
“Insurers are reacting by tightening the conditions of the cover they provide and excluding misdemeanors such as fraud from policy wording entirely.
“Although the UK has remained unscathed by serious corporate scandal to date, insurers are building into their ratings the realization that no company is entirely immune,” concluded Stephenson.
