10-Point Checklist for DO Renewals in a Hard Market

No one, least of all the insured, likes a price increase. But with the D&O market firming across the board – as confirmed by the Towers Watson “2012 Directors and Officers Liability Survey” released in March – businesses are likely to face rising premiums when their policies next come up for renewal.

The higher prices and tougher underwriting requirements of a firming market make it more imperative than ever for agents and brokers to be out the gate and start the renewal process early. To ease the renewal process and to arrive at the most favorable terms, use the following checklist to help ask the right questions, gather information, and keep the client informed.

1. Check with the carrier 90 to 120 days from renewal to understand if any rate changes related to D&O or employment practices liability (EPLI) are anticipated.
2. If rates are expected to go up, ask the underwriter what’s driving the increase, getting them to respond with as much specificity as possible. Inquire if the increase is across the board, meaning all risks in the portfolio, or limited to a certain segment such as a class of business (hospitality, for example), geographic (i.e., California), or at an even more granular level (i.e., Southern California). If the increase is limited, find out why your client’s particular segment has been targeted.
3. Ask the underwriter if according to their carrier’s guidelines certain underwriting elements would have more impact on the rate than others, for example the impact of an acquisition, organic employee growth, or layoffs. Find out if any coverage changes are anticipated, such as cutting wage and hour coverage, layoff exclusion, higher minimum deductibles, etc. Inquire if there is any underwriting information in addition to the application and attachments that would be helpful.
4. Request underwriting information from the insured 60 to 90 days from renewal. Compile a complete submission at the outset. It reflects well on the agent and the insured, and will save time in the process. Look for aspects of the business that changed from prior years and could impact the rate, such as adding a new location (particularly in a different state that might be a tougher venue).
5. Understand what’s driving the insured’s changes so relevant information can be explained to the carrier up front, eliminating underwriter uncertainty that may contribute to rate increases. Remember that asset growth drives the D&O rate, and employee growth drives the EPLI rate. Be prepared to debate underwriting factors such as financial statements with the underwriter. Agents and brokers who can astutely debate the finer points of a risk often are able to secure better terms on the renewals.
6. Analyze the underwriting data relative to last year’s policy and potential rate changes outlined by the carrier regarding renewal. Include comparative market data and industry benchmarks. Begin communicating these changes to insureds so they understand not just that there will be a rate increase but why.
7. If there has been a claim reported since the last renewal, get a detailed explanation and remedial measures from the insured — anything that will help you make the case that the incident was unique and is unlikely to happen again. Acquire claim information or analysis from the carrier about its perception of the claim. The carrier and the client will likely be looking at the claim differently (insured typically downplays, carrier has concerns), which could impact the renewal or even lead to a non-renew outcome. Arming the underwriter with the insured’s perspective and risk mitigation procedures might help reduce the need for adjustments to coverage or rates.
8. When major underwriting changes or material claims are involved, request a conference call with the insured and the carrier to allow the underwriter to hear firsthand the insured’s perspective and ask any questions of concern they may have. If you do request a call, make sure your client is completely prepared and has a solid presentation that will help the case.
9. Upon receipt, carefully compare renewal terms with those in the expiring policy. Review for more restrictive exclusions or new limitations to coverage, making sure that the client will continue to be adequately protected.
10. Communicate to eliminate surprises on either side and to ensure a constructive renewal process with the best possible outcomes for the client.