Heeding a call for the insurance industry

Marsh executive Lou Ann Layton’s comments during the 2015 Advisen Management Liability Insights Conference here in San Francisco could have been considered inflammatory, given her criticism of the insurance industry and its historic handling of directors and officers liability insurance coverage. However, a panel of D&O experts agreed that the insurance world isn’t responding in the most helpful way possible to a rapidly changing risk profile, a significantly more active SEC, an eagerly creative plaintiffs’ bar, and fallout from several significant derivative action lawsuits.

Panelists acknowledged that insurers might be wary of agreeing to cover the costs of regulatory investigations that, with fees and penalties, can rack up quickly. However, enough of these events have occurred that there’s a sense from interested parties that the data must exist to give insurers a sense of the true costs and the means to underwrite the risk.

We’ve seen similar complaints in the cyber insurance world — organizations want and need to buy coverage that flexibly responds to an evolving environment. For the insurance industry to dig in its heels and insist upon high retention levels and strictly limited coverage options will encourage insurance buyers to go elsewhere for a more appropriate solution.

For insurance policies to offer a real value to organizations, they must go further and stand with policyholders as they explore a new corporate landscape. There’s a sentiment that some cases should be settled, and quickly. Corporate fraud and abuse should absolutely always be ferreted out and penalized.

Other cases, however, stand to offer an opportunity for defendants in either regulatory actions or shareholder lawsuits to fight against unfounded lawsuits – and they require only the monetary means to successfully defend themselves. If a corporate client is truly acting in an aboveboard way, it should be provided the means to prove that in court, rather than settling.

That’s where insurance policies that truly protect come into play. A contract represents a confidence in the worthiness of the risk that a broker has placed, that an underwriter has evaluated and priced. It should represent a commitment to stand beside the policyholder to make a difference in how organizations respond to any allegation that comes its way.

Layton’s message offers guidance for any line of business. Offer what the clients need, and the deliver on that promise to a full, innovative, and loyal extent.