D&O

[hacktuary85]

Hi,

Currently I am trying to price D&O (directors and officers) insurances, does anyone here have priced that kind of insurances before?? where did you get the data (is there any source with enough data?), which criterias did you apply??(sector, firm historics, firm finances...) any idea? I have no idea how to start..

Thanks

[hacktuary85]

so.. my first concern would be, is it possible to price thes insurances with an actuarial model? is it possible to price them with an statistical justification??

[silverfox]

Ideas:
# of directors/officers
Percent of GL prem
Operating budget/revenue
Recent case law/court decisions
Public vs private
Family ownership vs other
% of low wage employees (recent Walmart suit)
Likelihood of M&A action down the road
Business overseas (possible violation of Foreign Corrupt Practices Act)
Read 9/19 issue of Business Insurance.

[whisper]

Originally Posted by hacktuary85

so.. my first concern would be, is it possible to price thes insurances with an actuarial model? is it possible to price them with an statistical justification??

Sure, you can.
The D&O market exists, so obviously it can be priced.

The Stanford Clearinghouse has a lot of information on class action suits. With work, you may be able to get insurance company pricing detail.

[oirg]

There are other considerations, such as market cap/asset size, recent IPOs, recent change of an auditing firm - but I think that the most important aspect that experienced underwriters try to get a sense for is senior management integrity.

There is no industry database. However, there is some benchmarking info, such as Towers/Watson D&O survey. Also, large brokers put out periodic analyses of the state of the D&O market, and there is a company called Advizen that sells D&O data.

One other thing that you may want to consider is that past industry experience may not be predictive of future claims without the macroeconomic context of that past experience.

[silverfox]

Does D&O go to the E&S market? I'd check some of the DOI filing databases to see if anyone filed rates.

[oirg]

Originally Posted by silverfox

Does D&O go to the E&S market? I'd check some of the DOI filing databases to see if anyone filed rates.

That's a good idea. It's possible that the rating rules and the corresponding rating factors could be in a separate filing

[tommie frazier]

if it is public company d&o, the stanford clearinghouse and maybe the D&O diary are good resources for loss history. these are mostly security class actions, and the costs won't include defense cost of the defendants (which is "loss"). but it is something. how to piece that loss data back to exposure data to price...much harder.

if you are looking for private company/non-profit D&O, this likely has less publicly available info, as the dollar amounts tend not to be headline worthy. and finding quotes online for some of these wn't tell you all the variables, but it might give you an idea of some level of cost.

the towers watson study may be usefule to find out wha tcompanies spend on D&O, and then to work it back to what you might charge and why.

[whisper]

Keep in mind:

D&O is a very volatile line that is subject to contagion risk. [Certain events can trigger systematic D&O lawsuits - like the stock option backdating claims.] To enter this line, you'll need to make sure you've got the access to capital to play here. If you don't have easy access to capital - you may want to think twice about entering this market.

[silverfox]

Originally Posted by whisper

Keep in mind:

D&O is a very volatile line that is subject to contagion risk. [Certain events can trigger systematic D&O lawsuits - like the stock option backdating claims.] To enter this line, you'll need to make sure you've got the access to capital to play here. If you don't have easy access to capital - you may want to think twice about entering this market.

If Walmart class-action status wasn't quashed, the flood gates would have broken. Now they've just opened up slightly.