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Directors and officers insurance for European directors is becoming more affordable and less restrictive as demand and supply both increase across Europe, according to buyers and insurers.
"The directors and officers insurance market is getting its act together in terms of the scope and cover it is offering. I don't see it tightening in the near future," said Stephen Ward, head of risk management and insurance for United Kingdom-based engineering company GKN P.L.C.
Amanda McKendrick, insurance manager for London-based civil engineering company McNicholas P.L.C. considers her company's D&O insurance to be "reasonably priced" and a product it can't afford to be without. "We could easily run through legal fees in excess of our premium just in defending a [doubtful] claim," she said.
The D&O market has become more competitive in recent years for several reasons, according to Andre Basile, vice-president, management liability with AIG Europe (UK) Ltd.
Rate hikes in 2003, following huge losses stemming from several massive bankruptcies and the bursting of the stock market bubble of the late 1990s, pushed the D&O market back into profit, encouraging underwriters into the market, he noted.
Meanwhile, demand for D&O throughout Europe is beginning to increase and other new players have entered the market in anticipation of yet further demand, he said. United States and Bermuda-based D&O underwriters are said to be looking to diversify their books by writing European business with non U.S. exposure.
As a result, rates for non-US business are falling and policy terms are becoming broader, he said.
In Germany, there is no legal obligation for companies to purchase D&O insurance for senior managers, but increasing management liabilities has prompted all the major German insurers to offer D&O policies, said Bill Perry, a partner and head of insurance and reinsurance for Charles Russell L.L.P.
"Smaller and medium-sized companies in Europe and those with no U.S. exposure now are purchasing D&O insurance," said AIG Europe colleague John Hopper, manager in the management liability division.
Moreover, "more attention is being given by executive and non-executive directors to their insurance cover including looking at the policy wording," he said.
"The D&O market is very soft at the moment and the softness of the market is dictated by claims and supply," said Ed Smerdon, partner in the D&O group of London-based law firm Reynolds Porter & Chamberlain L.L.P.
"There has been a benign claims environment post-Enron in Europe and underwriters are not being scared off writing this business," he noted.
Although legislation and directors' liabilities are increasing there "will be a time lag between entrants coming in and claims increasing," he observed.
While the U.K. remains the main market for buying D&O insurance, continental Europe is catching up fast, most notably Germany, France and the Netherlands, said Brian Cole, senior vice-president, Guy Carpenter & Co. Ltd., in London.
The increasing tendency to buy D&O insurance is not a result of increased claims, but "more a broadening of understanding of risks," he said.
The soft market at the moment may be because of more capacity coming in, in anticipation of increased demand, he said.
Mr. Cole estimated average rate reductions in the middle market of 15-20% with less reductions for larger companies.
Meanwhile, terms and conditions also are broadening, with underwriters accepting no co-insurance and lower deductibles, he said.
D&O prices "have become more reasonable in the last few years, compared with the prohibitive pricing several years ago," said Paul Hopkin, technical director of the Association of Insurance and Risk Managers in Industry and Commerce.
"Coverage issues remain a concern, particularly low limits of indemnity and exclusions for companies with U.S. exposures," he added.
Directors are becoming much more interested in their D&O insurance and asking risk managers what cover they have, he said. "Directors are seeking to understand their insurance cover and asking for details," he said.
Meanwhile, more non-executive directors now are asking for companies to provide them with D&O cover, said Mr. Hopkin.
But "D&O insurance can be like Swiss cheesefull of holes," he quipped. For example, a standard exclusion in policies is the "insured v insured" clause that can leave one party uninsured if, for example, a company sues one of its directors, or former directors.
This is a particular concern in Germany where companies have two boards, a managing board and a supervisory board, he said.