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Many CFOs Seeing Insurance Price Increases

CFOs are battling the growing insurance prices.

Businesses and residents in the areas affected by Hurricane Sandy are still being impacted by the storm's damage, and organizations throughout the United States are feeling it too. While it may not be apparent at first glance, the natural disaster is one of the reasons why commercial property/casualty insurance prices have been on the rise since 2011. In fact, high rates seem to be a trend in 2013, with directors and officers liability insurance also bringing higher costs for premiums. 

Businesses Experiencing Higher Rates
A recent report from professional services company Towers Watson showed 29 percent of public companies said they experienced a jump in their primary D&O policy premium. "Directors and officers, and their respective organizations, continue to be susceptible to a much wider range of claimants than in years past," said Larry Racioppo, vice president of the executive liability group for Towers Watson and author of the survey. "Increasing claim activity, including D&O and employment litigation, coupled with inadequate pricing and retentions in the private and nonprofit space, are all driving insurers' need for pricing increases."

CFOs have to pay attention to D&O insurance rates and policies from many aspects – including their role as an executive who could be susceptible to a lawsuit and their role as a risk manager who buys insurance and needs to protect any financial burden their company may have to face (such as the cost of an executive's or director's legal fees). As they review their policies, they are most concerned with the scope of coverage of their directors (71 percent of the Towers Watson respondents) or the that of the company's officers (73 percent).

While D&O rates are continuing to climb, the same goes for the average U.S. property/casualty insurance premiums. A study from electronic insurance exchange MarketScout revealed in a new study that prices rose 5 percent in May. The growth was most prevalent in accounts up to $250,000, which increased by 5 percent, while large accounts under $1 million grew by 4 percent.

"The commercial P&C market in the U.S. is continuing its steady trend of rate increases," said Richard Kerr, CEO at MarketScout. "There is ample capacity but underwriters continue to increase rates as appropriate."

What Can CFOs Do About These Price Increases?
Rising premium prices may prod CFOs into dropping their provider and shopping around for better rates.. This may be easier for property/casualty insurance than D&O policies, for the pure fact the former has more providers. Some finance executives turn to their peers first to explore their options. On Proformative's Question section, for example,

Edward Abbati, vice president of finance at Location Labs, raised the question "Are other members seeing Insurance premiums increase this year?" and Gordon Coyle, CEO of the insurance & risk management firm The Coyle Group, told us just what he would do.

"My suggestion, ask your broker – what strategy do you have to canvass the marketplace to make sure our increase isn't outrageous and kept to a minimum?" Coyle asked. "I would then entertain assuming more risk by increasing your retention points, if possible, depending on your loss history. Lastly, I would ask for transparency – ask your broker to disclose all the quotes they've received from the marketplace so you know they accessed the 10 to 15 insurers out there and what the pricing looked like."

By shopping around, finance chiefs may be able to see if they can get a better rate, or if they are better off sticking with the coverage they already have. In many instances, rises in price are going to affect the rates that each company can offer to organizations.

Should All Businesses Carry the Same Coverage?
The short answer to this question is "No," but it's important to understand why different companies invest in insurance policies, and if they are able to see a return on investment. There are many misconceptions out there about the many options – D&O insurance is not limited to public companies, for example, and general liability insurance does not necessarily address claims involving directors. While colleagues in different industries might talk about which policies are most beneficial, it's a good idea to get many different viewpoints on this issue.

In another question posted on Proformative's Questions section, consultant Wayne Spirak asked, "Insurance - What do you carry and does it protect you?" Ernie Humphrey, CEO at 360 Thought Leadership Consulting, suggested organizations need to set aside a certain amount of time each year to evaluate their policies.

"Reviewing existing policies and policy needs on an annual basis should be a standard practice" Humphrey said. "What any company need depends on its addressable markets and its risk tolerance. I had great experience with an insurance broker. Our company was growing quickly via domestic acquisitions and had extensive international operations. Understanding, benchmarking, and managing insurance (including claims), requires a certain expertise, and can be a full-time job."

Being able to understand the most glaring risks faced by the company will shed some light on which new policies to consider, as well as the full breadth of protections the business has been buying for years – and whether they are worth it. By looking over the details, CFOs may be able to look for ways to offset those jumps in prices they've been experiencing lately.