Navigating the D&O Market: What Mid-Sized Financial Institutions Need to Know
Mannel, Susan, ABA Banking Journal
Buying Directors and Officers liability (D&O) insurance in today's tight market is a balancing act for risk managers at mid-sized financial institutions. On the one hand, tougher government regulations and directors' fear of personal liability is making the coverage more imperative than ever. On the other hand, insurance industry losses due to the 9/11 terrorist attacks, a weak economy, endemic corporate fraud, and a record number of shareholder lawsuits have pushed premium prices skyward. So how does a mid-sized bank find the coverage it needs at a price it can afford?
Here's what to consider:
Require your directors to take an active part in governing the institution. Be aware that the Sarbanes-Oxley Act of 2002 (also known as the Public Company Accounting Reform and Investor Protection Act) requires, among other things, that CEOs and CFOs certify financial statements, that companies set up independent audit committees, that financial reports be filed regularly and without delay, and that independent directors take on a more active governing role.
Involve your CEO and chief financial officer in the D&O policy application process. Officers should be aware that major D&O insurers are holding directors and officers to higher accountability standards, eliminating automatic coverage for subsidiaries, limiting outside directorship coverage, excluding coverage in cases where a company must restate its financials, and capping exposure limits.
Make sure your policy application form is completed in a detailed and accurate manner. Equally important, make sure all documents that might be considered part of the application, even if they are not attached (i.e. …