HOW D&O POLICIES ARE RATED
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.
For many years, base price was often based on the number of board members, using the assumption that the size of the board was, generally, tied to organization size and those liability exposures had a direct relationship with board 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 areas below):
- Number of years in operation
- Operating (accounting) ratio results
- Size (assets) of an operation
- Type of operation (industry or service sector)
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:
- Activities and projects with which an insured is involved
- Industry type
- Rating results from outside rating services
- Underwriter assessment of an applicant’s governance and internal controls/procedures
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.