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Companies in the United Kingdom, particularly those traded in the United States, are buying huge amounts of insurance coverage as increasing class actions target their management, a survey of risk managers has found.
The poll, by the London-based Association of Insurance and Risk Managers and the New York-headquartered Advisen Ltd. market data analytics firm, found about 25 percent of firms responding said they bought £100 million ($163 million) or more directors and officers liability coverage.
In its report Advisen said the survey put chemical, natural resources and pharmaceutical companies on top with the highest estimated average annual D&O premium (£13.2 million, or $21.6 million), but that figure was skewed significantly by one company that paid a very large premium.
The financial services sector came in as the second biggest spenders with an average of £12.4 million ($20.3 million).
Advisen said 277 firms responded to the survey and most of those participating represented larger companies, with two-thirds having annual revenue of more than £1 billion ($1.65 billion).
Companies with U.S. home offices, or those issuing American Depository Receipts through U.S. exchanges, were found to have average policy limits of £130 million compared to £58 million for companies without U.S. exposure.
The Advisen analysis found that D&O insurance capacity is abundant, with coverage limits up to £300 million ($423 million) readily available with financial firms the exception.
According to the study there is a “global glut of insurance capacity across all lines of commercial insurance,” but four years of falling rates, bad 2008 catastrophe losses and lowered investment income for insurers “portends higher premiums for every type of commercial insurance.”
The report said corporate management in the U.K. and continental Europe “are increasingly exposed to lawsuits,” heightened shareholder activism and new laws permitting collective legal action.
“What was once perceived as a U.S. problem—‘class action’ lawsuits by disgruntled shareholders—has spread rapidly throughout the world. The plaintiff-friendly U.S. legal system, with its liberal class action mechanism, makes U.S. federal courts the preferred venue for pursuing shareholder suits for plaintiffs across the globe,” it advised.
The survey, the first of its kind, will be followed by looks at other lines. AIRMIC Chief Executive John Hurrell said, “Whilst the individual circumstances of each organization will differ, the information is enough to give buyers a good starting point in their negotiations with underwriters.”
Tom Ruggieri, Advisen president and chief executive officer, said, “UK companies and their directors are increasingly exposed to suits by shareholders and other stakeholders. Good benchmarking data enables risk managers to make better informed decisions about their D&O insurance programs.”
The report can be purchased online for $150 at http://corner.advisen.com/reports_airmic_DO_June09.html.