FRANKFURT, Germany—Legislation that would require publicly traded companies in Germany to impose personal deductibles on directors and officers covered by liability insurance looks to spur new coverage and may prompt policyholders to ask for discounts on their D&O liability coverage, experts say.

The upper chamber of Germany's two legislative bodies, the Bundesrat, on July 10 ratified the Act on the Adequacy of Managerial Salaries that includes a provision that would require buyers of D&O liability insurance to impose a per-loss deductible of 10% on covered individuals. The amount would be capped at 1.5 times the director's or officer's annual fixed compensation.

Under the legislation for companies trading stock in Germany, all new D&O coverage would be required to include the deductible and policies already in force would have to be amended by July 2010 to include it. Sources said German President Horst Köhler is expected to sign the legislation, which would go into effect after publication in Germany's Federal Law Gazette.

The legislation does not preclude directors and officers from insuring the deductible under a separate policy, which is prompting insurers to consider creating such products to cover the new exposure.

Policyholders, meanwhile, are considering whether to ask for refunds of D&O liability premiums on coverage that is amended or price breaks on new coverage that includes the deductible.

“That's what insurers will be confronted with and they won't like it,” said Hermann Mitterlechner, senior client adviser with Marsh GmbH's FINPRO unit in Frankfurt, Germany.

“Of course, risk managers will discuss with their insurers the effect that this will have on their premiums,” said Günter Schlicht, chief executive of Deutscher Versicherungs-Schutzverband e.V., the German risk management association based in Bonn. He said it is unclear whether those discussions would in-clude demands for re-bates or discounts.

Some insurers say they are considering new products to help D&O liability buyers cover the deductible, but it is unlikely they would issue rebates or discounts on policies because of the deductible.

D&O liability claims are infrequent but severe, and imposing deductibles will not change that pattern, said Nicole Weyerstall, Frankfurt-based financial lines manager-Germany, at Zurich Gruppe Deutschland, a unit of Zurich Financial Services Group.

“If we apply deductibles, we will not give large discounts, if we give discounts at all,” Ms. Weyerstall said.

“D&O is really a catastrophic cover,” said Markus English, financial lines manager with ACE European Group Ltd. in Frankfurt. Imposing the deductible does not minimize that exposure for insurers, “so we will not be giving discounts,” he said.

Mr. Mitterlechner said “directors and officers will seek to insure the deductible and that will probably create a lot of small products or enhancements around D&O for those deductibles.”

Hartmut Mai, global head of financial lines at Allianz Global Corporate & Specialty A.G. in Munich, said in an e-mail that the deductible requirement likely will lead to a “personal indemnity-type line of insurance for this niche.”

Zurich plans to offer insurance to cover the deductible, Ms. Weyerstall said, and the insurer will launch a product as soon as it is finalized.

ACE has yet to decide whether to write separate coverage for the deductible, Mr. English said, saying doing so could significantly increase an insurer's exposure on large accounts for many individuals.

Ms. Weyerstall said funding the deductible in a captive insurer is not an option.

“There have been discussions about using captives, but we agree that this would not be possible under the new law,” she said, because companies are not allowed to provide any insurance to cover deductibles for directors and officers.

“It would be a circumvention of the law,” Mr. Mai agreed.

Germany's D&O market for nonfinancial institutions has been in a trough for several years and the new law is unlikely to do anything to change market conditions, sources agreed.

“It's still an interesting market,” Mr. English said. “There are lots of losses on the one hand. On the other hand, a lot of claims have been settled for reasonable amounts.”

D&O rates have risen slightly at recent renewals, up by 5% to 10% for some nonfinancial accounts, Mr. English said.

But financial institutions have seen their D&O liability policy rates rise 50% to 500%, Mr. English said.