Types of D&O insurance products

In addition to the main form of D&O insurance which is purchased by a company to insure directors and officers and the company (for reimbursement), there are several other forms of D&O insurance.

Listed entities

  • D&O insurance policy. Publicly-listed entities typically consider including Side C Cover, which insures the company's liabilities arising out of securities market conduct breaches.

SMEs

  • Management liability insurance ‘bundles’ together D&O insurance with other types of cover such as Employment Practices Liability, Crime and Fidelity Guarantee insurances. It is often purchased by small and medium sized enterprises (SMEs). Guidance is provided for SMEs in our Dos and Don’ts for SMEs purchasing insurance.
  • There are also a range of other insurances which are particularly relevant to SMEs, such as public liability, workers compensation, motor accident or compulsory third party motor insurance, and special property damage covers such as comprehensive motor vehicle. These are compared in the Matrix of Standard Business Liability Insurances.

Not-for-profit entities

  • Association Liability insurance ‘bundles’ together Corporate D&O with quite separate types of cover such as Employment Practices Liability and Fidelity Guarantee insurances. It is usually purchased by Not for Profit and charitable associations.

Individuals

  • Personal D&O insurance is purchased by the individual director for the exclusive benefit of that individual rather than the corporate entity. It will usually cover liability arising while acting as a director. Personal D&O insurance is particularly targeted at directors who have a portfolio of directorships across different types of entities.

How much will D&O insurance cost?

Over the past seven years the overall trend of average premiums per policy has been to fall. The average premium has reduced by a third over that seven year period. The trend in average premiums has shown a consistent reduction from $5939 in 2003 to $3830 in 2009.

The following table shows the average premium for each year from 2003 to 2009 based on APRA data.

APRA data from Level 2 reporting on the National Claims and Policies Database (NCPD) - Directors and Officers liability and Employment Practices (D&O) 2003-2009

Underwriting Year Number of Risks Gross Written Premium ($’000) Average Written Premium $ Number of Claims Gross Claims Incurred ($’000)
2003 39,969 237,395 5,939 909 23,275
2004 44,408 256,984 5,787 1,095 168,593
2005 44,786 237,105 5,294 1,034 18,008
2006 49,025 225,715 4,604 1,244 Not available
2007 51,114 218,455 4,274 1,516 96,338
2008 53,571 225,784 4,215 1,576 45,946
2009 52,622 201,524 3,830 445 6,537


At the same time the numbers of policies have been trending upwards. In 2003, there were 39969 risks written by authorised insurers in Australia. The trend steadily rose in the ensuing seven years to 2009 when the number was 52622. However, the number of risks insured remains low given the size of the potential market for D&O insurance.

D&O insurance market

At less than 1% of the Australian general insurance pool of $32.5 billion, D&O insurance is a specialist, niche class of insurance.

Statistics published by the Australian Prudential Regulation Authority (APRA) for the year ended 31 December 2009 show that the total gross premium revenue for general insurance classes in Australia was $32.5 billion. This is an aggregate figure that includes D&O insurance together with other classes of insurance such as motor, workers compensation, marine, professional indemnity, compulsory Third Party motor, home and travel.

Statistical data is not publicly available for D&O insurance. However some APRA data, together with market opinion, indicates that the total D&O premium volume in Australia is around $250 million. Market opinions on the actual figure vary a little, but the consensus puts the range from $220 million to approaching $300 million.