DIRECTORS AND OFFICERS LIABILITY INSURANCE RATING CONSIDERATIONS

(March 2020)

Directors and Officers Liability rates are dependent upon the selected limit of liability, the participation percentage, the Deductible, the entity’s size and assets, and the type of business or service provided by that entity. Rating procedures are likely to be significantly different between any two insurers that provide D&O liability coverage.

Base Price

For many years, base price was often determined according to the number of board members. The assumptions were the following:

• The size of the board was tied to organization size
• A board’s liability exposures had a direct relationship its size.

While board size may continue to have some influence, an initial price may be established by a formula based on one or a combination of the following (companies can and do use other factors than the common ones shown below):

• Size (assets) of an operation
• Number of years in operation
• Type of operation (industry or service sector)
• Operating (accounting) ratio results

Credits and Debits

Again, any schedule of rating credits and debits will differ between any two D&O Liability insurers. Typically, a base rate computation will be modified by various factors, such as:

• Underwriter assessment of an applicant’s governance and internal controls/procedures
• Activities and projects with which an insured is involved
• Industry type
• Rating results from outside rating services

Other factors may also apply.

Deductible and Participation Percentage

Each company will establish its minimum deductible and percentage participation. Credits are provided for increased amounts.

Note: Some companies may use the term self-insured retention in place of deductible but the result is similar. In addition, the participation percentage may be called a coinsurance amount with the same result.