On March 7, 2012, Towers Watson released the report of its 2011 Directors and Officers Liability Survey. This report, which summarizes the results of the firm’s annual survey, reflects the survey respondents’ D&O insurance arrangements and purchasing patterns. The annual Towers Watson report is much-anticipated for its insights into the practices of corporate insurance buyers, and this year’s report does not disappoint. The 2011 report can be found here.


The Survey Pool

As with the results of any survey, it is very important in connection with this survey report to understand the characteristics of the survey participants. In particular, it is very important to understand that the pool of respondents to the 2011 survey is heavily weighted toward very large companies. Excluding nonprofits and charities, the average annual revenues of the survey participants was $4.254 billion. The average asset size (excluding nonprofits and charities) was over $5 billion. The average market capitalization of the public company participants was $5.3 billion. Only 19 of the public company participants had market caps under $1 billion. Even the private company respondents were very large; about half of the private company respondents had assets over $1 billion.


The respondents were also concentrated in certain industries. Over half of the respondents were concentrated in just four industries: financial service/insurance; manufacturing; energy and utilities; and financial services excluding insurance. The pool of respondents including only small percentages of respondents from other industries, including communications; natural resources; transportation; and healthcare/pharmaceuticals.


The Survey Results

Over half of the survey respondents reported that the premium charged for their primary D&O insurance policy had declined at the last renewal. However, this result diverged between the public company and private company respondents. Among public companies, 62% reported a decline in the premium for their primary D&O insurance policy, but only 35% of private company respondents reported a decline. In addition, a slightly higher percentage of private company respondents saw a premium increase (18%) compared to public companies (14%). The report states that these data can be interpreted to suggest “a potential hardening in the private/nonprofit segment with insurers looking to drive rates.”


The survey’s information regarding limits purchasing patterns is very highly reflective of the respondent pool’s composition of very large companies. Thus, excluding charities and nonprofits, the average total limits purchased among all survey respondents is $98 million. Even among private company respondents, the average total limits purchased was $36.3 million. The average total limit for public company respondents was $126.8 million. However, among public companies with market caps under $250 million, the average total limits purchased was $25.7 million and the median was $15 million. Among private companies with assets under $250 million, the average limits purchased was $8.3 million and the median was $5.5 million. A quarter of public companies reported that they had increased their limits at the most recent renewal, compared to 14% of private and nonprofit organizations.  


Over three quarters (77%) of respondents reported that, in addition to primary D&O insurance, they purchased excess insurance from at least one additional insurer. 57% of all respondents purchased excess Side A or Side/DIC insurance. However, 78% of public company respondents reported that they purchased Side A or Side A/DIC insurance. Consistent with the heavy representation in the respondent pool of very large companies, the average Side A and Side A/DIC limits purchased among public company respondents was $54.6 million, and the median was $30 million. These average and median figures were much lower for smaller public companies; for example, for public companies with market caps under $250 million, the average was $13 million and the median was $10 million.


Though the majority of respondents said that the most important consideration in purchasing D&O insurance was the scope of coverage for the directors, only a very small percentage of respondents reported that the purchased independent director liability insurance. For example, only 7% of public company respondents reported that they purchased IDL insurance.


Excluding charities and nonprofits, 56% of respondents, and 68% of public company respondents, reported that they have international operations. Of the public companies with international operations, 39% reported that they purchased local D&O insurance policies in foreign jurisdictions, while 17% of private companies reported that they have international units that purchase local policies. These figures undoubtedly reflect the predominance in the respondent pool of larger organizations, as the survey itself showed that the larger the company, the more likely it was to purchase local policies. The report itself notes with respect to the local policy purchasing patterns that the “results continue to demonstrate the strides organizations have made in understanding the complexities and exposures when conduction business outside the United States.”


66% of the survey respondents reported having had a D&O claim in the past then years. The larger companies were more susceptible to claim activity, with the largest companies reporting the highest levels of claim activity. About two-thirds of respondents who had claims reported that they were satisfied with their insurers’ handling of the claim, but nearly 20% of the respondents reported that they were dissatisfied with how the insurers handled the claims. (This 20% figure is consistent with same level of dissatisfaction reported in the 2010 survey.)



The Towers Watson survey report is a very valuable resource for the D&O insurance industry and for D&O insurance buyers. The survey report provides valuable insight into limits purchasing patterns, program structure and program design. All of us in the industry should be grateful that Towers Watson has undertaken the survey and made its report publicly available.


Anyone using or relying on the survey data, however, should take into account the fact that the pool of survey respondents was weighted toward very large companies, even among the private company respondents. Because a number of the survey results directly reflect that presence of a significant number of larger companies among the respondents, some results may be less relevant for smaller companies. In addition, as noted above, the survey pool was heavily weighted towards companies in certain industries. This should be taken into account in connection with companies from industries that were not as well represented in the respondent pool.


The survey’s results with respect to Side A purchasing patterns and with respect to the inclusion of local policies among companies with international operations are interesting. These results show the extent to which these program structures are becoming pervasive, at least among larger public companies. 


The survey’s results regarding the survey respondents’ claim experience represents something of a mixed review for the industry. On the one hand, about two thirds of respondents were generally satisfied with the way their insurers handled their claims. On the other hand, fully one out of five of respondents was dissatisfied, and this level of reported dissatisfaction was consistent in both the 2010 and the 2011 survey reports. This level of reported dissatisfaction suggests that there may be significant opportunities for the D&O insurance industry to deliver claims services in more customer focused way.


One final note about the survey. Everyone in the industry benefits from this survey and the survey report is a resource that is available to everyone. I hope that the industry will keep this in mind in future years and in particular make sure that the survey itself is distributed as broadly as possible so that the survey results are as fully representative as possible. Everyone can do their part to make the survey results even more meaningful in the future.


Very special thank to the survey report’s principal author, Larry Racioppo of Towers Watson, for providing me with a copy of the report.


The Latest FDIC Failed Bank Lawsuit: On March 2, 2012, the FDIC filed its latest failed bank lawsuit, against certain former directors and officers of the failed Freedom Bank of Georgia, of Commerce Georgia. The FDIC’s complaint, which was filed in the Northern District of Georgia, can be found here. In its lawsuit, the FDIC seeks to recover over $11 million dollars it alleges was caused by the twelve individual defendants’ negligence and gross negligence.


With this lawsuit, the FDIC has now filed 24 lawsuits in connection with the current wave of bank failures, including six so far in 2012. Of the 24 lawsuits overall, six have involved failed Georgia banks. Like many of these cases, this latest suit was filed just short of the expiration of the three-year statute of limitations. (The March 2 filing date came shorty before the third anniversary of the bank’s March 6, 2009 closure.) Because so many banks failed during 2009, it may be expected as the current year progresses we will be seeing an increasing number of lawsuits involving the class of 2009.


Scott Trubey’s March 6, 2012 Atlanta Journal Constitution article about the Freedom Bank case can be found here.