In response to last week's article concerning escalating D&O rates ("Soaring D&O cover blamed on US greed" 15 August, Insurance Times), I suggest we look more closely at the changes within our own legal and regulatory environment to understand the changing tide of D&O insurance.
Consider the cumulative impact of these phenomena in the last decade:
Due to increased scrutiny and regulation, UK company directors and officers are being held personally responsible for actions made on behalf of their company. While these measures have admirably increased accountability, they are also generating many more cases against directors
Not only are the number of lawsuits increasing, so is the cost of defending them. Today, insurers are routinely paying between £2m and £4m to defend a case - and occasionally far more
The range of actions for which directors are being sued has expanded. Shareholders, regulators, competitors, employees or even incoming boards are bringing lawsuits over trade secrets, health and safety, anti-competitive behaviour or insolvency, not to mention misrepresentation to shareholders. And there's no major trend among these; insurers are getting claims covering the full gamut
The UK has become a more litigious nation. Aggrieved shareholders can now turn to companies that specialise in bringing representative actions on their behalf against directors of UK plcs - battles that cause defence costs to rise exponentially
Over time, the sheer scope of the D&O insurance policy has been stretched to accommodate cover for the entity, rather than just the individual, the person for whom the cover was devised in the first place. To address this, insurers are having to re-examine wordings in order to restore the original intent and integrity of the contract
Finally, there are at least 12 major insurers that write primary business in the UK, not just two. We are raising rates because we need to get the right price for the exposure so we can protect our clients when there's a claim. It's as simple as that. D&O rates are driven by a number of forces but, in fact, current US litigation against US-domiciled companies has very little impact on the D&O market for UK companies; there are frankly quite enough cases on these shores to keep UK D&O insurers busy. As the saying goes, "you get what you pay for".
If companies really are "going without directors' and officers' cover rather than pay increased premiums", as the article states, they are simply gambling, for all the reasons cited above.
David Robinson
Manager, executive protection, UK and Ireland
Chubb Europe
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