Insurance rates for Directors’ and Officers’ coverage tell you a lot about what’s happening in different sectors of the economy. In its recent quarterly market overview for US business, Aon found that D&O rates for financial institutions are increasing significantly: capacity is shrinking and coverage terms are tightening.

On the other hand, the market for all other sectors continued to be extremely competitive with rates trending down, ample capacity and the broadest terms and conditions seen in years, Aon says.

Most insureds should expect to see stable rates in the short term, brokers agree, while rates for financial institutions are expected to continue to increase.

Willis in London also says that the commercial sector continues to resist the sharp rate increases for D&O insurance seen in the financial institutions sector, with the average premium for commercial business falling 5% in the second quarter. In contrast, some financial institutions have seen “double digit” premium increases, in percentage terms.

Willis stresses that the 5% reduction is for commercial clients with strong risk profiles.

But even these buyers could soon be seeing prices trend up, both brokers warn. “The delicate balance between the forces holding D&O prices down and the need for rate increases could soon shift in the favour of underwriters,” said Michael D. Rice, national practice leader of Aon’s financial services group.

Commenting on the findings of the Willis survey, Julian Martin, executive director of Willis FINEX Global, warned, “Owing to the economic downturn, we are experiencing an increased level of scrutiny and underwriting analysis, meaning that is essential for renewal negotiations to begin early in order to deliver timely renewals.”

You have been warned.

Tags: Renewals

This entry was posted by Garry Booth on Friday, October 9th, 2009 at 11:36 am and is filed under Insurance Commentary.