Policyholder Considerations When Selecting D&O, E&O and Cyber Insurers
When going to market for professional and management liability insurance, most policyholders, brokers and attorneys, go to great lengths to assess policy terms, and rightfully so. Of secondary importance however, is assessing the insurer itself - as task that too often gets overlooked. Here are some considerations for policyholders when underwriting prospective carriers.
- How strong is the base policy form? When performing D&O, E&O or cyber insurance policy assessments, stronger base policy forms (“off the shelf” policies) provide more value than policies that require multiple endorsements to achieve equivalent coverage. All such policies require careful grooming and aggressive negotiations when structuring terms and conditions, however D&O and cyber claims are often complex and unpredictable, which means even the most careful assessment and negotiations can still leave unexpected holes. The more negotiating a policy form requires, the more likely it is, that it also contains other coverage deficiencies that may be overlooked. If an insured has to negotiate appropriate adjudication language, soften exclusion preambles, request appropriate carve-backs, and/or ask for basic definition “enhancements”, they should be wondering what else they might be missing. Strong base policy forms, demonstrate good faith on behalf of the carrier and provide more confidence for those unexpected claim scenarios.
- Consider the carrier’s capacity and appetite. If it’s feasible that future contractual requirements may require higher limits, or if you as the policyholder think you may be interested in higher limits, does the underlying carrier have that limit capacity? Alternatively, can the carrier entertain coverage for future needs such as possible equity/crowdfunding raises that may arise in the next year or two?
- Does the carrier have foreign coverage capabilities? Depending on the arrangement, some carriers have the ability to issue locally admitted policies for certain entities, if needed. Those premiums can also be as low as $2,500 for small subsidiaries with minimal limits. This is a valuable feature for companies with foreign operations.
- What is the insurer’s claims payment reputation. When claims are tendered, do they have a “fight first” mentality? Are they known to aggressively contest costs and damages? Are their claims handlers experienced?
- What is the carrier’s underwriting stance? Do they have a reputation of quickly non-renewing post-loss, or are they known to work with their insureds? While policyholders can of course seek alternative carriers following any non-renewals, changing insurers post-loss can result in significant premium increases, more restrictive terms, and sever any history/relationship built with the incumbent carrier, which can hold some value.
- How strong is the broker/wholesalers’ relationship with the carrier? Stronger relationships can assist with obtaining language amendments/policy enhancements and other special requests that might arise, and in certain situations, can improve the odds of difficult claims being tendered by the carrier.
- How long has the carrier been writing this type of coverage? Carriers new to market may not be as experienced with amending policy language or have as much internal experience with the handling of difficult claims. It’s also not uncommon to see inexperienced carriers offer (initially) aggressive pricing, only to be forced to re-underwrite their entire book, later triggering non renewals and rate increases, or pulling out of classes of business entirely.