A directors’ and officers’ (D&O) liability insurance policy provides financial protection to an organization’s key management personnel. This article focuses on the renewal pricing in D&O insurance.
What is D&O insurance?
A company’s managerial executives might make mistakes in discharging their duties. These mistakes, though not deliberate, might cause financial harm to a third party. This could, in turn, mean harsh financial consequences for the company’s directors and officers. Moreover, the organization could be sued for its employee’s mistakes. Thus, organizations tend to purchase D&O liability insurance to protect their officers and themselves from possible financial repercussions. The primary purpose of D&O is to protect directors and officers from litigation and liability costs. However, in some cases, such as in the case of employment practices, the insurance can also protect the company from litigation.
The D&O insurance policy provides coverage to directors, officers, and even the entire organization if third parties file a claim for financial damages. The insurer offers the policy for a specific tenure, which the organization chooses. Once the tenure is over, the company must renew the policy to ensure continuous coverage.
Additional Read: Why do I need a D&O Policy?
What determines the D&O insurance policy renewal pricing?
The premium of a D&O liability insurance policy might change at the time of renewal. Here are some reasons for this:
- Premiums would rise if the organization decides to increase the sum insured.
- If the company chooses to add policy extensions to the coverage at the time of renewal, the premium would increase.
- The insurance company might apply a claim-based loading if there have been claims in the policy year. This would increase the premium amount. Alternatively, if the claim experience was favorable, the insurance company might offer a discount that would lower the premium.
- Sometimes, premiums can increase if a particular industry becomes more susceptible to litigation, which is usually the result of regulatory changes.
- Recent activity such as M&As or buyouts can also result in higher renewal prices because such transactions could result in litigation against directors.
- Renewal premiums could decrease if, for instance, an organization holds insurance for a few years with no claims. Stronger audit and internal control reports could also lower premiums.
Thus, the premium of a D&O liability insurance policy is not constant. In fact, it changes at every renewal. If you want the best renewal premium for your D&O insurance plan, you should compare available plans. Therefore, if you find a policy that offers coverage at a lower premium, you can switch and save on the premium cost.
Additional Read: What is D&O insurance cost?