Directors and Officers Pinched on Insurance

By Davis, Paul | American Banker, March 13, 2009 | Go to article overview

Directors and Officers Pinched on Insurance


Davis, Paul, American Banker


Byline: Paul Davis

The vise is tightening around banking companies seeking to insure their directors and officers against liability.

With federal and state prosecutors turning their attention to financial fraud, directors and officers insurance is becoming all the more critical - and all the harder and more expensive to obtain.

Depending on the coverage, premiums for the insurance rose 15% to 40% last year, and observers expect rates to double when it comes time for policy renewals this year.

In addition to higher premiums, bankers are facing more restrictive terms and conditions, lower coverage limits and higher deductibles. In some extreme instances, weak institutions are being denied coverage, observers say.

The timing is unfortunate for an industry that has struggled to retain and attract talented directors as corporate governance standards have tightened under the Sarbanes-Oxley Act of 2002. With significant headwinds continuing from the financial crisis, strong board leadership is in demand, and bankers are finding they need to pay up to insure the directors against liability.

The issue is likely to come to the fore - and the floor - during next month's shareholder meetings, when investors will get a chance to vent at the individuals they hold responsible for sinking share prices and struggles with profitability. D&O premiums are a meaningful expense line, ranging from several thousands of dollars for small institutions to $5 million or more for big ones.

Wilson Stewart, a vice president and the insurance risk manager at Fifth Third Bancorp, said the $120 billion-asset Cincinnati company expects a "significant" increase in its premiums when it renews its policy in July. "It is a difficult market with difficult circumstances. We have over the last year seen pricing pressure, but we also feel that maintaining coverage is critical to the corporate governance structure of our company."

Observers say both healthy and struggling institutions face rising costs and will find D&O insurance harder to find.

Many companies are reluctant to discuss the topic at great length, because of the tricky back-and-forth that comes with negotiating with carriers; a key renewal date for many policies is July 1.

"There is a crisis of coverage," said David Bradford, an executive vice president at insurance-industry research firm Advisen Ltd.

Premiums have been steadily climbing since 2004 and are now "about as high as I have ever seen them," he said. "There is simply more risk perceived, so the price goes up, and the breadth of that coverage narrows considerably."

Steve Fitzsimmons, the managing director of the professional liability group at Arthur J. Gallagher & Co.'s risk management services unit, says he knows how difficult it is for some of his clients to get coverage. "The usual underwriters are stepping back and questioning if they want to renew. It's a hard pill to swallow, particularly for the smaller banks. It's tough to tell a client you have gone to 22 providers and they keep getting rejected."

The Treasury Department's Capital Purchase Program has infused billions of dollars into the banking system, but it also has raised concerns among insurers that the government could make it harder for companies to indemnify directors and officers against litigation. Observers said those concerns create more demand for D&O insurance at a time where underwriters are paring back capacity.

Bradford said the biggest premium increases have been for all-inclusive coverage that protects directors and the company from lawsuits; premiums for such policies on average rose 37% last year and could double this year. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Directors and Officers Pinched on Insurance
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.