The final panel for this year’s PLUS D&O Symposium consisted of the following senior insurance company executives, who shared their views on important trends and developments in the D&O insurance industry:
- Brian Wanat, MBA, Managing Director, Aon Financial Services Group (Moderator)
- James P. Bronner, Chief Underwriter Officer, Chub Specialty Insurance and Sr. Vice President, Chubb & Son
- Jeffrey Klenk, Sr. Vice President, Travelers Bond & Financial Products
- John A. Kuhn, CEO, Professional Lines Division, AXIS Insurance
- Seraina Maag, MBA, CFA, President, Zurich Specialties
- Michael Smith, Esq., President, AIG Executive Liability
The following are some highlights from that discussion:
Policyholder Due Diligence: The panelists agreed that clients are asking more questions of their carriers during the underwriting process. According to the panelists, the policyholders are primarily concerned with the carriers’ financial health – their credit quality, reserves, underwriting discipline and ability to pay claims. The panelists agreed, however, that their clients are also interested in the carriers’ claims handling practices – namely the carriers’ willingness to pay claims.
Soft v. Hard Market: The panelists had differing views on whether there was a “flight to quality” and hardening of the D&O market. Some panelist said that they were seeing for the first time more interest in “quality paper” than cost. Others disagreed about the “flight to quality,” but acknowledged that the market was hardening. The panelists all agreed, however, that there was a significant difference between the FI and commercial markets. The general consenus was that the FI market was hardening and that by comparison the commercial market was relatively flat. The panelists, however, explained that the FI market was systemically exposed to greater market risk when financial catastrophes hit than the general commercial market, so the hardening of the FI market first was not surprising.
Quality of Talent – Improved Underwriting Tools: The panelist generally agreed that the industry is currently attracting very high quality talent – in part because other financial sector jobs simply no longer exist. The panelists also agreed that the industry now has greater access than ever to analytical models and financial tools. However, some panelists cautioned against becoming overly dependent on these models – a problem they referred to as “model risk.”
Crooks v. Incompetence: The panelist generally agreed that incompetence was easier to insure against than criminal or fraudulent behavior because incompetence usually comes with a track record. However, some of the panelists took exception with the notion that underwriters could not detect criminal fraud. Several anecdotes were then shared about underwriters identifying potential fraud based on what they viewed as “suspect” financials. The panelists agreed that it was crucially important to maintain effective and consistent underwriting strategies. Mr. Klenk then said that when deciding to underwrite a risk “a good ‘no’ can save us a lot more money than [we’d make in premium from] a hundred ‘yes’es that were not well thought out.”
Claims Handling Practices: The panelists next discussed the negative perceptions about the insurance industry’s claims handling practices in the D&O area. Some panelists felt that this perception was based on a misunderstanding about the complexities in involved in this type of coverage. They explained that D&O insurance involved complex claims and issues that were unlike those seen in any other line of insurance, like for example auto insurance. According to the panelists, it is imperative that claims departments adequately communicate with their policyholders the complex issues involved in each claim from the outset. They also agreed that the brokers needed to advise their clients from the very beginning that this type of insurance involved complexities that were different from other types of insurance.
2009 Industry Outlook: Initially, the panelists were hesitant to say much about the industry outlook for 2009, noting that the economy as a whole faces a tremendous amount of uncertainty. As the discussion continued, however, the panelists expressed a general level of optimism about the industry, particularly as compared to the difficulties facing other sectors of the economy. While the panelists acknowledged that the insurance industry is not immune to the economic crisis, they pointed out that there are several factors that might soften the blow for the industry – not least of which was the fact that commercial companies continue to need insurance even in a down economy.