Today’s Wall Street Journal carried an article on
a subject close to my heart (subscriber link):
The controversy over executive stock options has the
insurance industry casting a wary eye at the liability protection it
provides to corporate officers and directors, a development that could in
some cases push premiums higher or reduce coverage for directors and
executives.[...]The scrutiny has the potential to shake up the market for D&O insurance,
which is intended to protect top corporate officials from facing personal
losses for decisions they make in their posts running companies. The
insurance, usually paid for by the company, typically reimburses the company
or its officials for expenses such as legal fees. No hard figures exist for
the size of the D&O insurance market, but insurance-industry executives
estimate it generates several billion dollars in premiums annually.With new insurers recently entering the market and competing for D&O
business, premium prices have generally fallen in the past two years after
soaring amid the accounting scandals. Last year, U.S. for-profit companies
paid about 18% less on average for D&O premiums than in 2003, according to
an annual survey by Tillinghast, an insurance-industry consulting firm and a
unit of Towers Perrin.
And, speaking from other information I’m familiar with, that 18% average
decline metric doesn’t begin to tell the whole story, on just how silly
pricing has become in certain segments of the D&O market.