ents Down, But Smaller Cases Way Up
xpress concern about the market being “significantly under-reserved”
North America. “Without a doubt, the
D&O world is changing.”
So is the spectrum of who can
become embroiled in lawsuits, says Brady
Head, president of the public company
commercial accounts division for Chartis.
“The diversity of industries that are
targeted” is a challenge for underwriters,
Head adds. Identifying risky segments is
more difficult, though historically riskier
classes remain spotlighted.
Disturbing trends and observations
in D&O abound because, in addition to
changes in who is filing where, and on
what grounds, each case is more costly to
defend. Carriers are sometimes “along for
the ride,” Longmore adds.
“Whatever the trends [in claims], the
one trend up consistently is defense costs,”
reports Mark Curley, global head of D&O
claims for Chartis. “It’s harder to get [what
had been] routine settlements rubber-
stamped. Fees are up.”
Adds Cavallaro, “Cases are so much
more difficult to settle because there are
Plaintiffs’ attorneys are seeking more
money to settle—partly because they are
The proliferation of
smaller lawsuits “has
become a death by 1,000
cuts. Look out for the small
Key Coleman, Managing Director,
being asked by the courts to do more work
and partly because they know companies
have more defense costs to avoid.
RATES INCREASE; RESERVES INSUFFICIENT
All of these factors have led to upward rate
movement in the D&O sector. Chartis says
rates are 5-10 percent higher, particularly
in the primary layer.
Rate increases are also seen in the first
excess layer, says Howard. These layers are
seeing the most rate action due to the fact
they are most often penetrated.
There are many more carriers providing
capacity to excess layers higher up the risk
tower—where rate decreases can still be
had, Howard adds.
Cavallaro says that from the carrier
perspective, rates are “getting better”
(i.e. increasing). “But are rates anywhere
near where they need to be? No.”
“[Reserve] redundancies have been
stripped out,” he adds. Insurers felt massive
losses on the P&C side from an extremely
active catastrophe year in 2011, which
inhibited any ability to reserve.
Cavallaro adds the D&O market is
“significantly under-reserved.” In his
opinion, no one has set aside enough
money for the billions of dollars in
lawsuits still coming from the economic
meltdown in 2008.
While the number of securities class-action
suits did decrease in 2011, many D&O
experts aren’t willing to risk calling the drop
a trend. Is it just an accident of timing?
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April 16, 2012 | National Underwriter Property & Casualty | 39