The Daily Telegraph: Directors' legal cover set to rise

By Yvette Essen (Filed: 29/03/2004)

The cost of insurance policies covering company directors from legal action is set to rise further in 2005, despite steep rises over the past two years. 

The cost of Directors' and Officers' (D&O) insurance soared by 50pc on average in 2003 and is increasing by around 20pc this year even though premiums for other types of risk have started to fall. Mark Hewlett, managing director of insurance at Moody's Investors Service, said high-profile cases such as Shell would force underwriters to continue increasing the cost of cover.

Sixteen US class action lawsuits have already been filed against the oil giant and its directors since the company admitted it had over-estimated its proven oil and gas reserves.

"D&O rates are holding up very strongly, as claims are still coming in related to Enron, WorldCom and Shell," Mr Hewlett explained. "Whenever there is a steep drop in share prices, you often get groups of shareholders making claims against the company if there is an unusual reason for that fall."

Chris Hewitt, head of corporate D&O liability underwriting at Zurich London, said: "Companies that do not embrace a risk management culture may find that the cost of their insurance is considerably higher and some may even find it hard to secure cover at all."

He said insurers were increasingly looking for evidence that companies were demonstrating exceptional governance, finance and management controls.

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