Price of D&O liability insurance in U.S. financial sector increases 50% in 2008 Q4

Directors’ and officers’ liability insurance costs for the S&P Financials Sector increased 50% in 2008 Q4 compared to 2007 Q4, according to the Quarterly D&O Pricing Index released by Aon Corporation’s Financial Services Group.
The Index shows the average price for US$1 million in coverage limits increased 3.15% in 2008 Q4, compared with the prices in 2007 Q4. 
It’s the first time in 21 consecutive quarters that prices have increased year-over-year. In addition, it’s the first time since 2003 that price increases in the financial sector have been significant enough to move the entire Index.
“In the short term, we expect to see D&O pricing for the financial sector continue to rise,” said Mike Rice, managing director of Aon’s Financial Services Group and an author of the Quarterly D&O Pricing Index. “It is possible, however, that a tough underwriting environment could emerge for all public companies as the economy continues to negatively impact both financial results and stock prices.”
Aon’s analysis found that rates for D&O liability insurance in non-financial sectors actually declined by 6.3% in 2008 Q4 compared to 2007 Q4.
Aon lists a number of events contributing to the price increases, including:
•    about 1.3 million jobs were lost between October 2008 and December 2008;
•    Bernard L. Madoff was arrested and charged with securities fraud in connection with a Ponzai scheme that affected nearly 3 million investors and resulted in investment losses estimated at US$50 billion;
•    the Dow Jones Industrial Average, S&P 500 Index, S&P Financials Sector Index and the NASDAQ Composite Index all closed down significantly for the year; and
•    Stanford Law School’s Securities Class Action Clearinghouse announced that 225 federal securities class-action lawsuits were filed in 2008.