Looking For Alternatives: Aons D&O Hedge
One brokers plan to make the pricing of directors and officers liability insurance programs fairer to clients it believes are good risks is Chicago-based Aons D&O Hedge.
The concept of the hedge product is to review a corporations history and to get lower premiums for corporations that can demonstrate good risk history, said Steve Shappell, a director of Aon Financial Service Group in Denver.
“Dont lump us [corporate risks] all together,” said Mr. Shappell, articulating the main selling point of the plan. “It requires a little more underwriting, but we think this provision is brilliant.”
The provision he referred to calls for insurance underwriters to write the D&O policy for premium at or close to what it used to be, understanding that certain “trigger” events would alter the price or coverage.
For example, if the clients corporation has a proven record for not restating its earnings it would receive a lower premium, Mr. Shappell said. A restatement of earnings would trigger payment to the insurer for the higher premium, the cost of which has already been agreed to.
An alternative to the higher premium would be converting the policy to a Side A non-indemnity agreement for officers of the company. (“Side A” coverage protects directors who cannot be indemnified either as a matter of law or for other reasons.)
Mr. Shappell admits that the plan requires more work by the broker, but he points out that it is fairer to good risks and gets more of a return for the client.
It also screens better risks for the underwriters, he said, noting that a few major companies have already signed onto the plans, though Mr. Shappell declined to name them.
Given the changes in the D&O market, “a lot of risks are being forced to be creative,” Mr. Shappell said.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 3, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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