SAN FRANCISCO–Lou Ann Layton, managing director of Marsh’s FINPRO practice, issued a call to action for management liability insurance professionals, urging them to ensure the continued relevance of the directors and officers liability policy.
Lou Ann Layton
Speaking to attendees here at Advisen’s 2015 Management Liability Insights Conference, Layton challenged the underwriting community and brokers “to do and be better.”
She said she worries that the D&O policy, a contract that evolves “in major and minor ways” on an annual basis to reflect changing needs, could become obsolete.
“When an insurance product becomes so expensive, it ceases to be useful,” Layton said. Underwriters are pricing D&O policies as though the risk is a 1-in-20-year event, when it is more of a 1-in-2-year event.
“I think we need to seriously question ourselves whether we’ve been the best custodians of this risk,” Layton said. “If we do not continue to design a D&O contract that responds to the insured’s greatest concerns … we leave ourselves vulnerable to the problem being solved elsewhere.”
While securities actions have actually dropped over the years, regulatory enforcement actions have increased. It is in this area that D&O coverage should be responsive, according to Layton.
“You offer some of the most valuable coverage to the C-suite,” she told the audience, but added that she fears the industry has not effectively responded to clients’ coverage needs for increasing regulatory actions. She expressed doubts that D&O coverage is being priced correctly or whether the policy is offering the most needed provisions.
“With the privilege of being a senior leader comes great responsibility,” Layton asserted. “When new risks arise, like cyber, the rest of the industry looks to D&O professionals to solve what other insurance professionals cannot.”
“Just think, if you were a property underwriter, you’d be counting sprinklers,” she joked, noting that she intended to “pick on” both underwriters and brokers with her comments. Both segments of the insurance industry could be more effective, she said.
“Your responsibility is not just to deliver a reasonably priced contract,” Layton asserted. “Clients need you to be knowledgeable, to protect them from the known and unforeseen risks.”
It is time for underwriters and brokers to devote themselves to insurance products that provide the most needed coverages, that allow insureds a defense to fight claims in court, rather than policies with higher retention levels and exclusions, Layton said, specifically citing mergers and acquisition objections. Rather than denying claims, insurers should have made it easier for insureds to fight the plaintiffs’ bar and, upon winning, reward them with diminished retentions.
“I fear the insureds will continue to be disappointed in the contract and the insurance community,” Layton concluded. “Everyone in this room should get back to designing contracts needed, wanted, and valued.”
Erin is the managing editor of Advisen’s Front Page News. She has been covering property-casualty insurance since 2000. Previously, Erin served as editor-in-chief of The Standard, New England’s Insurance Weekly. Erin is based in Boston, Mass. Contact Erin at [email protected].
