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3 Ways to Adapt Your Approach to the D&O Market

With coronavirus complications affecting rates, exclusions and risks, many independent agents will be forced to rethink how they approach directors & officers coverage.
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The Grand Princess is now a name synonymous with the coronavirus outbreak. The $450 million grand-class cruise ship was thrust into the national spotlight when California reported its first death from coronavirus—a 75-year-old man who had been on the ship’s previous voyage to Mexico.

The exact point at which he contracted the virus is disputed. However, the day the man died, Grand Princess officials told the 60 passengers who traveled with him they’d need to stay in their rooms until they could be screened for symptoms. Still, most were allowed to carry on as normal. Reports later surfaced of passengers continuing to mingle—even playing bridge together.

Carnival Corp., the company behind the Grand Princess, is now facing multiple multimillion-dollar lawsuits from several passengers. Claims include not being warned of the high risk of being infected with the novel coronavirus, being given untimely and incorrect information and more.

Incidents involving a company’s decision-making in response to the coronavirus has put directors & officers insurance in the firing line. With rates on the rise, exclusions and lower limits becoming commonplace, and a whole host of business sectors becoming hard-to-place risks, many independent agents will be forced to rethink how they approach offering D&O coverage.

“This is going to be a challenging time for those that only sell price,” says Peter R. Taffae, managing director, Executive Perils. “The most important approach now is adding value. An experienced and innovative broker will end up with a high price, higher retention and good value.”

Here are three ways to stay on top in a market that has been turned on its head:

1) Reach out early. As the fallout from the coronavirus pandemic remains unpredictable, it doesn’t hurt to try to stay one step ahead.

“Placements are going to be much more challenging than they have been in the past,” says Kevin LaCroix, an executive vice president at RT ProExec, a division of R-T Specialty, LLC. “Agents should be proactive with their clients, reaching out to them for renewals earlier than they might have in the past.”

Agents need to “warn clients that the process may be more demanding and more time consuming than it has been in the past” and inform them “the process will be more unpredictable,” LaCroix says.

Since the only available options in the marketplace may include higher premiums, restricted limits and worse coverage, clients will appreciate being given the extra time to plan and consider alternative structures. “Some agents will want to consider enlisting the assistance of a wholesaler specializing in management liability insurance placements,” LaCroix adds.

2) Beware of exclusions and language. As insurers look to protect themselves at renewal time, this is where agents can truly earn the trust of their clients, as well as their commission.

In the current marketplace, items to be on the lookout for “are the addition of a financial insolvency exclusion or any endorsement or exclusion with a February 2020 or more recent version edition date,” says Heather Schaaf, underwriting director, Burns & Wilcox. Also, “carriers may be reworking their forms to be more restrictive. Take note of any changes in ‘for’ and ‘based upon’ language being switched,” she says.

Meanwhile, “valuable enhancements to look for are specific additional or sub-limits for derivative demand investigative costs, side A—non-indemnifiable loss, employed lawyers, subpoena, HIPAA and shareholder dilution,” Schaaf says. “Also, if insureds are able to obtain it, defense outside limits is a valuable extra.”

"As the country reels from an economic downturn and the coronavirus pandemic, D&O coverage is good protection against potential lawsuits and peace of mind,” Schaaf adds. “Make sure clients have a well-rounded book that includes D&O. It can often be overlooked by smaller, privately owned companies as the big publicly traded entities’ D&O claims are the headline-making losses, but it is important for the smaller businesses too.”

3) Offer more. Independent agents are well-positioned to transfer the wealth of familiar knowledge of their client's risk profile toward discernment of risk from a D&O underwriting perspective.

“Offerings such as crisis response coverage or reputation coverage can help your client minimize risk or damages and preserve reputation,” says Joseph Spallone, senior vice president, commercial management liability, Sompo International U.S. Insurance. “Partnering with carriers having strong financial ratings, claim and underwriting expertise, as well as the products and services to meet their client’s needs, will take on greater importance as we move toward a flight to quality versus the price driven, commoditized market of the not so recent past.”

“Most employment practices liability and D&O liability insurance carriers offer free legal hotlines for clients to call to obtain advice from specialists in employment law before making decisions, thus greatly reducing the potential for future litigation,” Spallone says. “Most D&O carriers are very invested in partnering toward mitigation of costs and there is a lot to be gained in risk management services that are offered with the policy.”

 “Agents can find value in their role by familiarizing themselves with these capabilities,” he adds. “Unfortunately, these valuable and complimentary services often go underutilized by clients.”

Will Jones is IA managing editor.
For more resources download the Big “I” Virtual University on-demand webinar webinar Executive Liability: Current Trends in D&O Liability and Insurance.