While it is true that insurance companies are in business to make money, and most insurers are looking for increases of between 5% and 15% on an annual basis, the D&O (directors and officers) market remains an anomaly. Now that the worst of the financial crisis appears to be over and bankruptcy filings are declining, most carriers are willing to settle for very low rate increases on their D&O book of business provided the risk is a good one. Why, when other lines of business are looking for more aggressive increases, is this market behaving differently?
The answer is that previously many carriers actively fought to obtain and retain this business. Now, having suffered significant losses, they are actively underwriting their books and they are being much more selective as to which policies they will offer to renew and what terms and conditions they are willing to offer. Thus, they are underwriting more by experience of a risk than by market segment, size of risk, or size of premium. This is especially the case with smaller privately held companies.
As for publicly traded companies, the underwriting philosophy is not much different. The huge swings in pricing are a thing of yesterday. The renewal premiums on publicly held policies will be rather flat even though it is widely believed that pricing and retention on such policies are not really where they should be. As a result, carriers will be reviewing and scrutinizing all underwriting data and carefully choosing the accounts they want to provide with the most aggressive pricing. In view of the losses which carriers were forced to absorb during the financial crisis, they are trying desperately to get back to making their books profitable once again. One way of accomplishing this is by increasing retentions and making sure that the premium charged are reflective of both the exposures presented as well as the loss history of the account. Basically, they will pick and choose what they care to write rather than automatically offering a renewal.
So, it is suggested that you determine the largest retention you can live within an effort to keep your premiums reasonable and then use this to negotiate any proposed rate increase offered by your carrier. Talk this over with your agent or broker, prior to your renewal, to ensure that you obtain the most cost effective renewal proposal available in the market.
Karen Skoler, CPCU