"I think it is still going to grow more," Mr. Turk said, citing a table in the report indicating that 43 percent of public companies said they have had Side-A coverage at some point. "It's still less than half," he said–noting, however, that purchases are greater for larger companies.

Among all organizations with assets over $10 billion, 73 percent bought Side-A-only coverage, according to the report. In contrast, only 1 percent of those with assets less than $6 million had the cover, with the percentage rising to 16 percent for those in the $50-to-$100 million range, and 57 percent for those between $5-to-$10 billion.

Pulling together the overall results for public and private company survey participants of all sizes, the report indicates that 11 percent said they had purchased Side A at some point on the 2008 survey, compared to just 9 percent in 2007.

A change in the distribution of survey participants may explain some of the differences between the results in the two years. The report notes that there were 11 percent fewer participants in 2008, and that the largest decline in participation came for a group with assets between $6 million and $10 million (a 59.4 percent reduction).

Still, the trend in the Side-A survey figures makes sense to Mr. Turk. "There's a greater awareness of the benefits of a Side-A policy," he said, adding that many insurance purchase decisions are spurred when people see the coverage at work on actual claims.

"There's a D&O claim, and whether it's because of insolvency or some other reason, the company does not reimburse the directors and officers, and people see these individuals can get protected by a Side-A policy. A lot of companies will look at that and ask, 'Do we have this insurance?'"

This is what makes D&O "such a dynamic coverage. It's constantly changing based on claim experience," he said, referring not just to buyer appetites, but also how insurers react to enhanced coverage.

Like the 2007 survey, the latest Towers Perrin report has one set of results Mr. Turk finds puzzling–figures revealing low buyer appetites for coverage similar to Side A that is known as Independent Directors Liability coverage.

He explained that IDL is "the next step" in D&O coverage, which not only focuses on individuals by removing Side B corporate reimbursement and Side C entity coverage, but also removes internal directors and officer from coverage.

It's basically Side A just for the outside directors, Mr. Turk said.

"Last year, we had a lot of people that were looking at that," he noted. In fact, 2007 survey results revealed that 23 percent of the participants were evaluating IDL coverage.

According to the just-published 2008 survey, however, "less than 1 percent of public companies reported buying it [and] there was a big reduction in the number of companies that were even considering it," according to Mr. Turk.

In total, only 3.2 percent said they considered IDL–1.7 percent of public companies and 4.3 percent of private firms. The much higher comparable figures from the 2007 survey were 21 percent of public companies and 30 percent of private firms.

"There could be a number of reasons," Mr. Turk said, speculating that the economic downturn was a big one. "As the economy started to deteriorate, people may just be saying, 'We've got to be very careful about how much we're spending on all this kind of coverage,'" he said.

The low take-up rates are probably not that surprising to insurance brokers, based on the comments delivered by two brokers during a recent webcast.

On the webcast, hosted by New York-based Advisen late last month, Phil Norton, vice chair for the Midwest Region at A.J. Gallagher in Chicago, said one reason IDL policies are not popular "is because the Side-A policy is so much easier to place."

"IDL insurers seem to ask for so much more information, even though fewer people–and some of the same people–are included in Side A. Side A just covers a few more," he said. "They want more information for a product they may overprice."

He also noted that the Side-A form is more attractive to the typical buyer he deals with–the chief financial officer, treasurer or risk manager–who may opt to buy Side A, reasoning that "this could cover me, too."

In contrast to IDL, Mr. Norton said there's been "an amazing trend" toward increased Side-A purchases since 2006. In that year, he said roughly 50 percent of his clients bought Side-A-only policies or added limits to the Side-A limits they already had. "Then the next year, 50 percent again."

Kevin LaCroix, a partner with Oakbridge Insurance Services in Beachwood, Ohio, said "the value proposition for Side A has gotten a big boost recently with the settlement in the Broadcom case," referring to a $100 million derivative lawsuit, which is a non-indemnifiable claim.

While the company is not insolvent, excess Side-A insurers contributed $40 million, he said. "It's the first example outside the insolvency context where excess Side-A carriers had to contribute substantially toward settlement–[making] the need for this type of protection…much more apparent."

Mr. LaCroix noted that the question of whether a broker's discussion of IDL turns into a sale depends on who is on the other end of the conversation. "When you're having it with the CFO or treasurer, it's a different dialogue than if you're having it with the board and the outside board members," he said.

He reported that while teaching at the Stanford Law School Directors College earlier this year, he addressed "a roomful of outside board members, all of whom" wanted to talk about D&O insurance designed specifically for them, although they didn't necessarily refer to the IDL product name.

The trend now, he said, is toward creating insurance that "continues to get more refined–so on top of the A-B-C D&O policy, and on top of excess Side A, there's yet another layer that takes out the risk of the Dennis Kozlowski effect–of an inside black-hat person [or wrongdoer] soaking up all the insurance, and leaving outside directors with nothing left to defend themselves." (Mr. Kozlowski, the former chief executive of Tyco International, was convicted in a corporate scandal in 2005.)

"This is the newest trend," Mr. Norton agreed. "We are seeing these triple-layer programs." He likened the new structure to a layered dessert parfait topped off with "a little tower that's an IDL-type policy."

Mr. LaCroix suggested that the top layer need not be a true IDL policy, but instead could be an excess Side-A policy written for non-officer directors as a group.

Explaining the distinction, he explained, "when you compare the protection available under an IDL policy to what's available under a state-of-the-art excess Side-A DIC, the IDLs just haven't kept pace–in part because there was no competitive pressure to do it."

MOST COMPETITIVE SEGMENT?

Chris DiLullo, a senior vice president in Lockton's Washington, D.C., office, believes competition for broad-form Side-A coverage is more intense than any other sector of the D&O industry right now.

On a coverage basis, Mr. DiLullo said examples of expansions include the removal of insured versus insured (or company versus insured exclusions) and the addition of reinstatement-of-limits provisions (sometimes limited to just the independent directors). "I've even seen one contract that didn't have a bodily injury/property damage exclusion," he said.

David Bradford, executive vice president of Advisen, said his firm has seen some Side-A policies that clearly cover ERISA liability.

"Generally speaking there's a lot of competition on a price basis for broad-form A-side coverage," Mr. DiLullo observed. "I would think there would be a lot of support for that statement in the industry." He declined, however, to quantify the level of price declines.

Brokers and consultants over the years have told National Underwriter that one significant obstacle to Side-A coverage purchases has been the high price tag.

Giving one reason for high Side-A premiums, Mr. DiLullo said carriers "are underwriting the financial solvency" of the insured. Insolvency "is obviously one of the key moments in time that the broad-form contract could be called upon."

With bankruptcy filings now multiplying and potentially prompting insurer claims payouts under more Side-A policies, price competition could start to disappear, experts confirm, but they expect competition to stick around for a little while longer.

"Logic would tell you that as loss payments occur, underwriters will react," Mr. DiLullo said. "They haven't always reacted to frequency of the claims, but their pricing dispositions have reacted when they're actually making the payments. We're not really in that period yet."

Mr. Bradford agreed. "In theory, the spike in bankruptcies and associated securities claims would put Side-A policies at risk, [but] I haven't actually talked to any underwriters who are wringing their hands at this point in time over the Side-A exposure….It's something that people talk about a lot, but I haven't seen the real angst in the marketplace that there's a crisis going on with Side A."

Interestingly, some figures in the Towers Perrin report–which are notably based on survey responses that are a year old–seem to suggest Side-A rates are rising, while A-B-C rates fall.

According to the report, the average rate per $1 million limit for A-B-C coverage was $16,624 in 2008, down from $21,422 in 2007, while the average rate per $1 million limit for Side-A-only was $15,638 in 2008, up from $11,015 in 2007.

Mr. Turk said he is not entirely comfortable drawing the conclusion suggested by these numbers–that A-B-C rates fell 22 percent while Side-A rates jumped 42 percent. He said that since the average rate figures in the report are not just for repeat participants, "there could be some explanation for [the changes] based on a change in the makeup of the firms participating."

The figures for just 2008, however, put the Side-A average rate per million ($16,624) very close to the average A-B-C rate per million ($15,638).