D&O market softens, Tillinghast finds

The market for D&O liability coverage has continued to soften, while claims frequency and severity have continued to increase, according to a 2005 survey conducted by the Tillinghast business of Towers Perrin.
The Tillinghast survey included 2,645 U.S. and 49 Canadian participants. The survey uses a standardized premium index that takes into account policy limit, corporate reimbursement deductible and other coverage features.
Using its premium index, Tillinghast found D&O coverage costs decreased approximately 9% on average between 2004 and 2005 for U.S. for-profit participants. “The median premium index reached the lowest point since our 2001 survey,” the report notes. “The average premium index has decreased 18% from its high of 1,237 in 2003.”
Tillinghast’s report notes that 2005 deductibles/retentions mainly stayed the same, while “enhancements increased and exclusions continued to ease, building on a trend observed in our 2004 survey.”
At the same time, the report notes, claims frequency and costs are going up. “Claim frequency for 2005 for-profit participants was 0.34 compared to a frequency of 0.33 reported by 2004 survey for-profit participants,” says the report.
“Susceptibility [to claims] was 19% and 6% for 2005 for-profit and non-profit participants, respectively,” the report notes. “In our 2004 survey, susceptibility was 15% and 5% for for-profit and non-profit participants, respectively.”
Tillinghast notes the average claim payment decreased for four of the five claimant classes reviewed in its 2005 survey. But because of “a very large increase in the shareholders/investors class,” the overall average payment to claimants increased substantially for all participants from Tillinghast’s 2004 survey to the current survey.