How are D&O insurers reacting?
Historically, four D&O insurers wrote the lion’s share of community banking D&O insurance. However, The Big Four are re-evaluating their books of D&O insurance, and many insureds have been forced to consider other insurers, many of which are relatively new writers of community banking D&O insurance.
The Big Four are tightening underwriting scrutiny for community banks and demanding higher premiums at most all renewals as well as narrowing coverage terms and conditions at many renewals.
What should community bank directors and officers be concerned about?
The most worrisome coverage exclusion some banks have faced at renewal is a regulatory exclusion, which precludes coverage for actions brought by the FDIC, state regulators and the other alphabet soup of regulatory agencies with bank oversight. Community banking directors and officers must be aware of any regulatory exclusion in their D&O programs and must look to procure coverage including regulatory coverage (i.e., without a regulatory exclusion).
The Big Four are particularly unwilling/unable to remove a regulatory exclusion for distressed banks. However, some of the new insurers are much more willing and able to consider providing regulatory coverage.
In the event that a community bank is subject to a memorandum of understanding or other regulatory action, the availability of coverage for regulatory claims is crucial to personal asset protection for the directors and officers.
Chris Rafferty is vice president of the Financial Services Group at Aon Risk Services. Reach him at [email protected] or (312) 381-4523.
