"The demand is beginning to spread out among corporations, especially in the financial area. Now, virtually any public company with a meaningful market capitalization is showing an interest," observed Greg Flood, executive vice president and chief operating officer of National Union Fire Insurance Company, a unit of American International Group in New York.

"Stand-alone A-Side is now becoming a basic purchase, particularly for large Fortune 500 companies. This was not the case five years ago," added Tony Galban, D&O underwriting manager for Warren, N.J.-based Chubb Specialty Insurance.

St. Paul Travelers' National D&O Liability Product Manager Mark Lamendola has also observed the soaring demand for the A-Side policy. "It was once viewed as a Fortune 100, Fortune 500 product, but now our company is seeing demand spread to Fortune 1000 and lower."

Insurance law expert Dan Bailey, an attorney at law firm Bailey Cavalieri LLC in Columbus, Ohio, reported that more than half of large public corporations now include A-Side policy in their D&O program--thanks to the rising level of interest during the past three years,

As a result of this heightened demand, supply has also been on the rise, with more carriers jumping on the A-Side bandwagon for their clients.

New York-based Marsh's national D&O practice leader, Lou Ann Layton, said she sees a "very competitive marketplace" for A-Side coverage. "Some of the markets that didn't have a specific form for A-Side now do. [And] companies are offering new policy forms with broader A-Side coverage," she said.

Pricing--while risk-specific--continues to be competitive and will remain so at least for the remainder of 2005 and the first quarter of 2006, she forecast.

One uncertain factor, however, is how profitable these new A-Side products will turn out to be, since these policies are only a couple of years old.

"It's too early to tell what the profitability of these policies will be given the current regulatory and legal environment as well as the time it takes to settle claims," St. Paul, Minn.-based St. Paul Travelers' Mr. Lamendola cautioned.

Of course, traditional Side A/B/C D&O policies have been offering Side-A coverage for individual directors and officers before. Side-A, as opposed to Side-B, is designed to cover losses for directors and officers in cases when the corporation cannot indemnify, such as settlements/judgments in shareholder derivative lawsuits, or when the corporation is financially unable to provide coverage for a director or officer.

But what's really taken off in the past three years is the popularity of A-Side-only excess policy. Industry participants said current challenges in the legal and corporate landscapes are forcing directors and officers to become much more sophisticated in managing their personal risk, and as a result they are pressuring their corporations to purchase more D&O liability insurance specifically to protect their personal assets.

"You cannot ignore the increase in the frequency and severity of shareholder derivatives lawsuits such as Oracle, Hollinger, Computer Associates. These recent settlements and developments will continue to fuel the demands for A-Side products," noted Mr. Lamendola.

(Derivative suits are brought by shareholders on behalf of the company, naming directors and officers as defendantes.)

Further, the non-rescindability of the broad A-Side difference-in-conditions policy is also a big factor in attracting the interest of directors and officers, he added. (See side-bar for an explanation of different types of A-Side and their features.)

Indeed, nowadays when a corporation asks a potential officer or director to come on board, the candidate often demands a copy of D&O protection so that it can be reviewed by a personal lawyer, observed Steve Shappell, managing director of Aon Financial Services Group's legal and claims practice in Chicago.

Mr. Shappell said corporations are being receptive to the demands by directors and officers to obtain more dedicated A-Side coverage, and thus, corporate risk managers are bringing more options to executives to ensure they are getting maximum protection.

Ms. Layton from Marsh also observed, "The outside directors are getting advice from legal counsel, and are looking for more A-Side coverage. The overall general awareness of the D&O market has increased among outside directors."

Chad Berberich, manager of home office underwriting at Peoria, Ill.-based RLI Corp., another underwriter of A-Side policies, also observed that directors and officers are now taking a much more active role in the placement of D&O insurance. "Directors and officers now understand D&O insurance better than they ever have. As they become more intelligent buyers, risk managers are demanding quotes for A-Side coverage. Demand is certainly increasing."

Already, the marketplace for the A-Side policy has gone through a transformation. Just a few years ago, CODA, an ACE Bermuda company and a longtime benchmark and standard-bearer in A-Side protection, was just about the only carrier offering a separate, broad-form A-Side policy. Now, it faces competition from a number of major carriers offering similar, competing CODA-like products.

"We were the first to offer the A-Side-only coverage. The CODA policy was created out of the hard marketplace in the mid-1980s, when D&O coverage was very difficult to obtain," recalled Carol Zacharias, senior vice president and underwriting counsel for ACE USA Professional Risk, part of Hamilton, Bermuda-based ACE Ltd.

Ms. Zacharias said the industry has been seeing a significant uptick in the number of clients buying separate A-Side to better protect directors' and officers' personal assets. She said she sees a number of factors behind this spike in demand.

"There are more severe cases, criminal cases, trials and regulatory actions against directors and officers," she said.

Ms. Zacharias's company is also recognizing the growing demand for A-Side among small corporations. ACE, which insures a substantial percentage of Fortune 1000 for A-Side products, recently introduced through its ACE USA unit an A-Side policy that specifically targets companies outside Fortune 1000.

Michael Ha is a former Assistant Editor for National Underwriter. He is now working as a freelancer in New York City.

Quote (Photo included)

"Stand-alone A-Side is now becoming a basic purchase, particularly for large Fortune 500 companies. This was not the case five years ago."

Tony Galban, D&O underwriting manager, Chubb Specialty Insurance

Art caption:

Directors are pressuring their corporations to purchase more D&O liability insurance--in the form of A-Side-only excess policies--specifically to protect their personal assets.