07 Aug Exactly what to Discuss When You Speak About D&O Insurance Coverage
Perhaps because of my many years in the D&O insurance business, I am frequently approached by younger insurance agency and insurance brokerage professionals who are thinking about trying to concentrate on D&O insurance as product specialty. I generally encourage this idea, as I think that D&O insurance is an interesting industry space that still provides a lot of worthwhile opportunities. But the younger professionals who approach me are looking for more than just a few words of encouragement. They are also looking for advice and information. They are not always sure what in particular they are looking for when they approach me, but I know after many of these conversations one thing they usually need – that is, they need to know what to talk about when they talk about D&O.
There are some particular reasons why D&O insurance is a good product to focus on. The first is that it is a good leading edge product. Many potential business prospects that have no interest in talking about their insurance arrangements in general are interested in talking about D&O insurance. Most people who say they don’t want to talk about insurance still want to talk about D&O insurance. In fact, my experience is that even the people who say they don’t want to talk about D&O insurance actually do want to talk about D&O insurance.
Most business managers are all too aware of the need to get their D&O insurance right – and they have a certain amount of anxiety about the issue as well. Many company managers are uneasy about their potential liability exposures and they are unsure about whether they have the right protection or sufficient protection.
There is a particular reason why D&O insurance is a good product to lead with, and that is that if you are talking about D&O insurance, chances are that you are talking to a decision maker or at least somebody that has to report to a decision maker about D&O insurance.
There is another reason why D&O insurance is a great product to lead with, and that is that there is always so much to talk about. I have been doing D&O insurance one way or another for 35 years, and one of the reasons I enjoy it so much is that there is always something new. Basically every new day’s headlines brings in a host of new D&O issues and provides a wealth of things to talk about – data breaches, privacy concerns, #MeToo, cryptocurrencies, the world provides a never-ending array of interesting topics for discussion, that many business people actually want to talk about.
There is one more reason why D&O insurance a good product to lead with. The fact is that even in this day and age with all of the expertise in the D&O insurance industry, a lot of D&O placements are defective. They are out of date and haven’t been reviewed in years and so lack the current state of the marketplace bells and whistles. For smaller companies, the policies in place often are standard off-the-shelf base policy forms, full of carrier-friendly features and lacking available enhancements that ensure that the policy is more protective of the company and its executives. Often these deficiencies are material. When the coverage in place has so many shortcomings, it can be relatively easy to show that you can add value.
The great thing is that once you have demonstrated that you can add value with respect to D&O, it is then easier to talk about other coverage lines. Company managers who have no interest in talking with you about their company’s insurance arrangements are more receptive if they have been shown that you are going to help them and not just sell them insurance.
So, great. You are in the door and you have a chance to talk to a company business manager about D&O insurance. What do you talk about?
There are a few things you want to talk about briefly but emphatically. The first is that unlike any of other type or line of business insurance, D&O insurance protects against the business managers’ own personal liability and provides protection for the managers’ own personal assets. Though the current standard D&O insurance form does also provide protection for the company itself, the policy’s historical purpose and still its primary purpose is to provide personal protection for the individual executives. So getting the D&O insurance right is really important, at a personal level, for the person you are talking to.
The personal liability aspect of D&O insurance is the heart of the matter. Individuals who concentrate on their personal liability exposure reliably have several interrelated questions they want answered. How much insurance is enough? Are we with the right carrier? Do we have the right policy with the right policy terms and conditions? Ultimately, what they want to know is that they will be protected. Once you have a prospective client asking these kinds of questions, you are on the right track to being able to convert a prospect into a client.
At this point, I need to pause for a moment because there is a fairly standard conversational impediment that often will come up and that will prevent the more productive conversation. And that is the all too frequent feeling among many potential buyers that they don’t need D&O insurance. The objection will come in one of several standard forms; common formulations of this concern are “We have been in business for decades and we have never had a claim” or “We are a family-owned business, we are never going to have a D&O claim.”
I have some pretty standard answers to these kinds of objections. To the “thirty years, no claims” objection I point out that in over 35 years in the business I have seen thousands of D&O claims and in more than 98% of the cases, every single one of these companies the day before they were sued could say they never had a claim before. The fact is that D&O claims are infrequent. D&O insurance is what the industry calls a low frequency/high severity line. Which means that the claims don’t happen often, but when they do come up they can be expensive to defend and resolve. Indeed, sometimes the claims can be bet-the-company claims. You can’t see over the horizon, you don’t know when one of these kinds of claims might come up, even if you have never had a claim before.
To the “we’re just family” objection, I point out that the list of prospective claimants in a D&O claim is far longer than just owners of the business or shareholders. These days, D&O claims come from a wide variety of different prospective claimants. Customers, competitors, vendors, suppliers, employees, regulators, there is a whole universe of potential claimants out there beyond just owners or shareholders. At this point in the conversation, it is good to be prepared to provide a few specific claims examples, to bring home to them the possibility of claims hitting their business and brought by anyone of a number of prospective claimants beyond just owners or shareholders. (I talk more below about how to come up with claims examples).
If you have gotten over these hurdles and managed to get on to the point about talking about how to ensure that the executives are protected, great. Once you are on to this ground, your way is clear to talk about the company’s coverage. This conversation is significantly enhanced if you have already had a chance to review the company’s existing coverage and can talk about the existing program. If you haven’t yet had a chance to review the coverage, this is the point to ask for the opportunity to review it.
This is also a good point in the conversation to talk about the fact that basically there is no standard D&O policy form; that almost all of the policies are customized at least in part based on negotiation; and that all of the carriers offer a variety of coverage enhancements, but only on request. For most carriers, if you don’t ask for an enhancement it is not going to be on the policy. And so if your prospect’s policy is lacking enhancements that their insurer routinely grants, that is a pretty good sign that the company’s current insurance advisor probably didn’t even ask for the enhancement.
At this point in the conversation, you will need to be prepared to talk about limits adequacy and limits selection – that is, how much insurance is enough. At a minimum, you should be able to make comparisons to similar sized companies in your own portfolio. Peer purchasing information is indispensable. I discuss below what to do if you are concerned you don’t have enough internal information to be prepared to answer limits adequacy questions.
You may also need to be able to talk about the company’s insurer as well. For starters, you need to be able to talk about the insurers’ financial ratings, including in particular the ratings of the carriers on the prospect’s program. The carriers’ claims paying track record is also important, and here it is important to be able to talk about which carriers have proven helpful in the past in tough claims situations, as well as which carriers seem inclined to take aggressive claims positions.
Finally, you should talk about claims and what will happen if the company has a claim. You need to be able to show that if the company has a claim, an effective claims advocate is available to ensure that their interests are protected. In my experience, this part of the conversation is particularly important, especially for companies that have had claims problems in the past.
I know that many younger people particularly those with less experience who have been following me will undoubtedly have noted the significant number of things I mentioned above that they will need to be prepared to discuss or have at the ready for this kind of conversation – claims examples, peer purchasing information, claims advocacy expertise. If you are just starting out or you are with a smaller agency that does not have these kinds of resources, what do you do?
For many insurance professionals in this position, there is a good alternative available that provides you with a way to be able to marshal these kinds of resources — that is to partner with a qualified wholesaler. A wholesale partner should be able to provide claims examples and peer purchasing pattern information, and provide a good answer to the claims expertise problem. For example, agents who partner with me and my team can reassure their clients and prospects that in the event of a claim they will be able to call upon claims advocacy resources with decades of experience involving thousands of claims.
A qualified wholesale partner should be able to help you quickly with policy reviews, to help you identify concerns with the prospects existing insurance placement. Armed with the right resources from the right wholesale partner, you should be in a position to demonstrate the advantages you offer compared to competitors – and just as importantly for you to have the reassurance that your placements will withstand scrutiny from your competitors as well.
Regular readers of this blog undoubtedly are aware that I generally try to stay away from anything that sounds like an advertisement or promotion. I recognize that the last few paragraphs might sound a lot like a promotion. If this bothers anybody, I apologize. The fact is that the reason I suggested use of wholesalers here is that for many industry professionals, particularly at smaller firms, partnering with a qualified wholesaler is going to be the best way to be able to come up with the materials and resources to be able to compete effectively in a crowded and competitive marketplace. The key is making sure that you have the right partner, one that can actually provide the right resources that will enable you to compete successfully.
Another question I frequently get from younger professionals just starting out in the business is how they can quickly build the technical knowledge to be able to focus on the D&O insurance product line. One very rudimentary starting point is The D&O Diary’s own “Nuts and Bolts of D&O insurance” series (which can be found here). The Nuts and Bolts series is a good starting point but it is not going to be enough to try to build up product expertise.
For those interested in taking the next step, there are some very good resources available through the Professional Liability Underwriting Society (PLUS). PLUS offers a comprehensive professional liability insurance curriculum. The curriculum is broader than just D&O insurance, but the program is set up on modular basis, so it is possible to just purchase and focus on the modules you are interested in. You can find out about the curriculum on the PLUS website, here. The curriculum is available in hard copy or digital download form.
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