Canadian Underwriter

D&O profit margins decrease

April 1, 1999   by Canadian Underwriter

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Intense competition, increasing litigation and the rising cost of claims is decreasing profitability in directors and officers (D&O) liability insurance market, a panel of executives told the D&O Liability and Issues Symposium sponsored by the Professional Liability Underwriting Society (PLUS).

John Cavoores, president of National Union Fire Insurance Company, warns that growing competition in the D&O market is reducing profit margins. Combined with higher loss potentials emerging from rising securities fraud litigation in the U.S. and a continuation of accounting irregularities, an increase in average indemnity payments and possible Y2K litigation, the D&O profit margins could decline heavily over the coming years.

Despite the possibility of D&O suits arising out of Y2K, rates for the insurance products have declined, concerning market observers. “If price movement has occurred (resulting from expected Y2K claims), unfortunately it has been in the wrong direction,” says Peter Wilson, president of CNA Insurance. He adds the price reduction despite a possible need to raise prices, is the result of hyper-competition and insurers not properly analyzing the coming possibilities.

John Kearney, senior vice president of Executive Risk Management Associates, notes insurers are still entering the D&O market and that underwriters are not yet suffering. “But the market is starting to shift,” he warns. “People are beginning to understand the real implications of coverage expansions of the last few years and the dynamics of settling a claim when the insured really has no financial incentive to stay and vigorously help defend the claim after it goes through its retention.”

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