Kristopher Marsh

An application process is undertaken by an organisation and its management to establish a policy for the year ahead. While the process is somewhat similar to that of other insurance classes, there are important differences. By understanding in advance what is involved, not only can any frustration be minimised, but also the best possible terms be achieved.

In this article, we will explore the application process within the context of the following coverages:

• Directors and officers liability insurance
• Employment practices liability insurance
• Management liability insurance
• D&O insurance for nonprofits

You may also find that similar concepts apply to a broad range of financial lines insurances, such as professional indemnity insurance, cyber insurance, and even crime insurance to a certain extent. Keep in mind, however, that each policy is strictly interpreted according to its own terms and conditions.

Contents
1 Application process: A definition
2 The components of a submission
3 Satisfying a duty of disclosure
4 The role of an application in the policy lifecycle
5 Who can represent an organisation in insurance matters?
6 Imputation and severability of knowledge
7 The importance of checking policy documents
8 Application process: An example
9 Conclusion

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A duty of disclosure is at the foundation of what is required to establish a policy. An organisation and its management must fulfil this requirement to secure the coverage they seek from an insurer. Any subsequent agreement between the two parties will only be as strong as the trust imputed by satisfying this mutual contractual obligation.

In this article, we will explore the duty of disclosure within the context of the following coverages:

• Directors and officers liability insurance
• Employment practices liability insurance
• Management liability insurance
• D&O insurance for nonprofits

You may also find that similar concepts apply to a broad range of financial lines insurances, such as professional indemnity insurance, cyber insurance, and even crime insurance to a certain extent. Keep in mind, however, that each policy is strictly interpreted according to its own terms and conditions.

Contents
1 Duty of disclosure: A definition
2 When must a duty of disclosure be satisfied?
3 The importance of continuous disclosure
4 What are the consequences of non-disclosure and misrepresentation?
5 Who can represent an organisation in insurance matters?
6 Imputation and severability of knowledge
7 To disclose or not to disclose, that is the question
8 Duty of disclosure: An example
9 Conclusion

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An underwriting process aims to understand the risks faced by an organisation and its management. It is undertaken by an insurer to help it decide whether coverage should be offered, and if so, on what terms. Best described as part art, part science, it is a process that is essential for establishing an insurance contract that benefits all parties involved.

In this article, we will explore the underwriting process within the context of the following coverages:

• Directors and officers liability insurance
• Employment practices liability insurance
• Management liability insurance
• D&O insurance for nonprofits

You may also find that similar concepts apply to a broad range of financial lines insurances, such as professional indemnity insurance, cyber insurance, and even crime insurance to a certain extent. Keep in mind, however, that each policy is strictly interpreted according to its own terms and conditions.

Contents
1 Underwriting process: A definition
2 The role of underwriting in a policy’s lifecycle
3 What are the common underwriting considerations?
4 Assessing an organisation’s risk control environment
5 How are the terms of a policy crafted?
6 How are optional coverages considered?
7 Accounting for recent claims and circumstances
8 How is a premium calculated?
9 Underwriting process: An example
10 Conclusion

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A no known loss letter is an important but not always well-understood document. It aims to help an organisation and its management satisfy its duty of disclosure. This obligation must be fulfilled while negotiating the terms of policy at any stage of its lifecycle. Without one, an insurer is not likely to agree to any requested changes.

In this article, we will explore the concept of a no known loss letter within the context of the following coverages:

• Directors and officers liability insurance
• Employment practices liability insurance
• Management liability insurance
• D&O insurance for nonprofits

You may also find that similar concepts apply to a broad range of financial lines insurances, such as professional indemnity insurance, cyber insurance, and even crime insurance to a certain extent. Keep in mind, however, that each policy is strictly interpreted according to its own terms and conditions.

Contents
1 No known loss letter: A definition
2 The role of a no known loss letter in the policy lifecycle
3 What is the purpose of a no known loss letter?
4 Who can sign a no known loss letter?
5 Imputation and severability of knowledge
6 A no known loss letter sample
7 No known loss letter: An example
8 Conclusion

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When an organisation is subject to a change in control, there are significant consequences for its insurance coverage. There are important decisions to be made, not only by an organisation’s existing management but also by its future leaders. If they fail to adequately prepare in advance, everyone involved may be exposed to unnecessary risk.

In this article, we will explore the concept of change in control in the context of the following coverages:

• Directors and officers liability insurance
• Employment practices liability insurance
• Management liability insurance
• D&O insurance for nonprofits

You may also find that similar concepts apply to a broad range of financial lines insurances, such as professional indemnity insurance, cyber insurance, and even crime insurance to a certain extent. Keep in mind, however, that each policy is strictly interpreted according to its own terms and conditions.

Contents
1 Change in control: A definition
2 Its relationship to a claims made policy
3 The significance of prior acts coverage
4 Why is a change in control clause necessary?
5 How a policy’s conversion effects coverage
6 Why should an extended reporting period be considered?
7 How to establish new coverage for future acts
8 Change in control: An example
9 Conclusion

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Run off insurance is an important consideration for an organisation and its management when considering long-tail exposures. A claims made policy requires that a current policy be in place if any claim is to be accepted by an insurer. Without prudent deliberation following a change in control or policy non-replacement, individuals may be unnecessarily at risk.

In this article, we will explore the concept of run off insurance in the context of the following coverages:

• Directors and officers liability insurance
• Employment practices liability insurance
• Management liability insurance
• D&O insurance for nonprofits

You may also find that similar concepts apply to a broad range of financial lines insurances, such as professional indemnity insurance, cyber insurance, and even crime insurance to a certain extent. Keep in mind, however, that each policy is strictly interpreted according to its own terms and conditions.

Contents
1 Run off insurance: A definition
2 Relationship to a claims made policy
3 The significance of prior acts coverage
4 The consequences of a change in control
5 Why does a policy convert into run off?
6 How a policy’s conversion affects coverage
7 What is an extended reporting period?
8 Why a discovery period is a solution to non-replacement
9 Run off insurance: An example
10 Conclusion

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An extended reporting period is an important consideration for an organisation following a material change to its ownership or corporate structure. Merger and acquisition activity can certainly be exciting, however, it will also have an effect on a policy’s coverage. Without prudent deliberation, management can be exposed to claims arising well into the future.

In this article, we will explore the concept of an extended reporting period in the context of the following coverages:

• Directors and officers liability insurance
• Employment practices liability insurance
• Management liability insurance
• D&O insurance for nonprofits

You may also find that similar concepts apply to a broad range of financial lines insurances, such as professional indemnity insurance, cyber insurance, and even crime insurance to a certain extent. Keep in mind, however, that each policy is strictly interpreted according to its own terms and conditions.

Contents
1 Extended reporting period: A definition
2 Its relationship to a claims made policy
3 The consequences of prior acts coverage
4 What is a change in control?
5 Why does a policy convert into run off?
6 How a policy’s conversion affects coverage
7 How is an extended reporting period implemented?
8 Calculating the price of an extended reporting period
9 Extended reporting period: An example
10 Conclusion

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A discovery period is an important consideration when an organisation does not, or cannot, replace a policy at expiry. Without a current policy in place, an organisation and its management may be exposed to claims without support. In such situations, a discovery period can allow the notification of claims and circumstances for a certain period of time.

In this article, we will explore the concept of a discovery period in the context of the following coverages:

• Directors and officers liability insurance
• Employment practices liability insurance
• Management liability insurance
• D&O insurance for nonprofits

You may also find that similar concepts apply to a broad range of financial lines insurances, such as professional indemnity insurance, cyber insurance, and even crime insurance to a certain extent. Keep in mind, however, that each policy is strictly interpreted according to its own terms and conditions.

Contents
1 Discovery period: A definition
2 Its relationship to a claims made policy
3 The consequences of prior acts coverage
4 The importance of maintaining a current policy
5 Types of discovery period in the event of non-replacement
6 Discovery period: An example
7 Conclusion

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The claim notification process is an important aspect of securing protection for an organisation and its management. An insurance policy is often purchased with the hope that its coverage will never need to be relied upon. However, for many organisations, it is likely to be only a matter of time before a claim arises requiring notification to an insurer.

In this article, we will explore the claim notification process in the context of the following coverages:

• Directors and officers liability insurance
• Employment practices insurance
• Management liability insurance
• D&O insurance for nonprofits

You may also find that similar concepts apply to a broad range of financial lines insurances, such as professional indemnity insurance, cyber insurance, and even crime insurance to a certain extent. Keep in mind, however, that each policy is strictly interpreted according to its own terms and conditions.

Contents
1 Claim notification: A definition
2 The significance of a claims made policy
3 Why should any circumstance also be notified?
4 How to make a claim notification
5 Coordinating a claim response
6 What is a reservation of rights letter?
7 How to navigate a late notification
8 The claim settlement process
9 Claim notification: An example
10 Conclusion

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A policy’s language surrounding the duty to defend will have a significant influence on how a claim will be handled. It is an important consideration for an organisation and its management, as it will determine how much control they have over their own defence. For some, exerting influence over this process will be a high priority, while for others less so.

In this article, we will explore the duty to defend within the context of the following coverages:

• Directors and officers liability insurance
• Employment practices liability insurance
• Management liability insurance
• D&O insurance for nonprofits

You may also find that similar concepts apply to a broad range of financial lines insurances, such as professional indemnity insurance, cyber insurance, and even crime insurance to a certain extent. Keep in mind, however, that each policy is strictly interpreted according to its own terms and conditions.

Contents
1 Duty to defend: A definition
2 How do managerial risks arise?
3 How is a claim addressed by its subject?
4 Providing an insurer with a claim notification
5 Coordinating a claim response
6 Conflicts of interest and the duty to defend
7 The claims settlement process
8 When will an insurer assume the duty to defend?
9 Duty to defend: An example
10 Conclusion

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Claim settlement is the reason why an organisation and its management ultimately purchases insurance. It describes the process that is required to bring a claim to its conclusion. Many of the costs incurred along the way are likely to be covered, however, some may not. In either situation, it is helpful to understand what can be expected.

In this article, we will explore the claim settlement process in the context of the following coverages:

• Directors and officers liability insurance
• Employment practices liability insurance
• Management liability insurance
• D&O insurance for nonprofits

You may also find that similar concepts apply to a broad range of financial lines insurances, such as professional indemnity insurance, cyber insurance, and even crime insurance to a certain extent. Keep in mind, however, that each policy is strictly interpreted according to its own terms and conditions.

Contents
1 Claim settlement: A definition
2 Making a claim notification
3 Coordinating a claim response
4 Navigating the claim settlement process
5 How is an insured’s loss settled by an insurer?
6 Sharing the costs of a claim
7 Prioritising payments and recoveries
8 Under what circumstances will an insurer reserve its rights?
9 Dealing with claim declinature and dispute resolution
10 Claim settlement: An example
11 Conclusion

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Claim examples are helpful for understanding the types of issues faced by an organisation and its management. They provide insight into the general nature of claims, as well as the financial consequences arising from their defence and settlement. It is also is helpful for understanding how an insured and insurer can seek a resolution that is mutually beneficial.

In this article, we will explore a number of claim examples for directors and officers liability insurance and other related coverages.

Contents
1 Claim examples – Directors and officers liability insurance
2 Claim examples – Employment practices liability insurance
3 Claim examples – Management liability insurance
4 Claim examples – D&O insurance for nonprofits
5 Claim examples – Side A coverage
6 Claim examples – Side C coverage
7 Conclusion

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The renewal of a directors and officers liability insurance policy is an interesting and challenging process. It requires working closely with an organisation and its management to secure coverage for another year. There are many insurers that can offer such coverage, but market conditions are often uncertain.

In this post, we explore seventeen helpful tips for achieving a better renewal outcome.

Start the process early

When it comes to renewing a policy, it is important to start early. In this process, time is precious. When you have it on your side, you have options. When you don’t, panic can creep in quickly. No one likes being caught out by the unexpected, so getting an early start is the easiest way to get ahead. 

This obviously means that you need to formulate a plan in advance. Planning takes time but it is helpful for mitigating unforeseen challenges. With a bit of luck, your renewal will be smooth sailing. But as anyone who has been in this industry for long enough can tell you, anything that can go wrong often does.

By commencing the renewal process a few months ahead of expiry, you will improve your chances of obtaining the best terms available. For package policies such as management liability insurance and D&O insurance for nonprofits, two months should be enough. If you are managing a larger programme, three months is probably better.

Set clear milestones

Much of what you do as an insurance professional is set expectations. Not only are you considered the subject matter expert, but also the driver of the process. Your client will listen to what you say, but you have to provide clear instructions. It’s your job to chart the waters ahead and make them comfortable with what comes next.

Let your client know what documents you need to be completed and when you need them. Also, let your client know when they can expect to hear from you, so the timeframes are clear from the beginning. Once deadlines are set, implement a follow-up procedure to ensure everything runs on time.

Sometimes, you may need to whip your client into gear if they are not coming back to you. It’s not unusual to have to send a reminder for the return of important documents, such as a no known loss letter. Do it kindly, and let them know that these deadlines aren’t just for your benefit – their coverage relies on it.

Review limits and retentions

Speak to your client about their existing coverage and evaluate its suitability moving forward. Not all organisations take the time to review what they have in place, and even if they do, their operations can change quickly. This means that it is a conversation that should be raised annually.

A few questions to consider:

• Is the limit of liability adequate for defending multiple individuals?
• Is the limit of liability adequate for defending multiple claims?
• Can the self-insured retention be comfortably afforded?
• Can the self-insured retention be comfortably afforded in the event of multiple claims?

In addition to reviewing the limit of liability and self-insured retention, it may be helpful to review the policy structure more broadly. For example, many large organisations consider improving coverage for management by purchasing stand-alone Side A coverage in excess of their primary policy.

Get organised in advance

Being organised is the key to a successful renewal. In the lead-up to expiry, the holding insurer’s proposal form should be completed as part of the application process. Additionally, a range of supporting documents should be included for an underwriter’s consideration.

Common supporting documents include:

• Audited financial statements
• Corporate structure diagram
• Employee handbooks
• Leadership profiles
• Constitutional documents
• Corporate communication policies

The more relevant information you can provide to an insurer, the better. These details will be carefully analysed throughout the underwriting process, so it’s worth taking care. By supplying clear and concise information, you can present an organisation’s risk profile in the best possible light.

Disclose prior losses

A claims made policy requires that all prior losses be disclosed in the proposal form. That way, not only are underwriters completely aware of an organisation’s loss history but also it is clear to management that each of these claims and circumstances will be excluded from the new policy moving forward. 

To minimise the possibility of not satisfying a duty of disclosure, the board of directors should be surveyed prior to renewal, along with any other senior officers. When disclosing past losses, the description should include what corrective action has been taken to ensure that similar incidents are less likely to occur in the future.

Finally, it’s important not to assume that underwriting and claim departments are communicating with each other. Insurance companies are busy environments, and information is occasionally overlooked. Should a non-disclosure occur during renewal, it will be your client that suffers the consequences.

Devise a remarketing strategy

When developing a renewal strategy, sourcing alternative quotes should be thought about in a big picture context. An organisation’s relationship with its insurer plays an important role in protecting its management from any wrongful act. Therefore, the choice of insurer should be considered with long-term goals in mind.

There is typically little benefit of changing insurers just to save a few dollars. A cheap premium is all well and good, but there is often a trade-off involved. As the old adage goes; if something sounds goods to be true, it probably is. Any remarketing activities should be undertaken with purpose.

While it is important that your client pays a competitive premium, continuity and the quality of coverage should be of utmost importance. Changing insurers is likely to affect the prior and pending litigation date. With this in mind, remarket carefully or you may discourage insurers to put forward their best terms.

Deal with the right people

The insurance industry is built on relationships. Brokers and underwriters develop trust over years, and it can have a profound effect on the terms available.  Sometimes who you know is just as important as your ability. Make sure you are dealing with people who can help you obtain the best possible terms for your client.

If you are a broker, does your servicing underwriter have the necessary authority to get the terms you need? If not, it might be worthwhile asking the matter to be escalated to a senior underwriter. This goes with speaking with clients as well. Are you speaking with a decision-maker? If not, it might be difficult to get the deal done.

If you are on the client-side, does your broker have the experience to understand the level of complexity faced by your organisation? If not, you might need a more experienced person to support them. The right kind of person should be able to provide you with a range of renewal options, as well as relevant claim examples.

Pick up the phone

Email provides a quick and effective way of doing business. But the ease with which email is used also means that it can quickly become impersonal. To offset this, try to pick up the telephone from time to time and speak with your clients and underwriters. It will strengthen your relationships and improve your renewal results.

From a broker and client-side perspective, speaking with your counter-parties is one of the simplest things you can do to break down barriers and open up lines of communication. For example, it may be easier to explain the difference between an extended reporting period and discovery period over the phone, rather than by email.

Raising discussions with underwriters about their risk appetite or coverage offering is a win-win for both parties. You will arrive at a better outcome for your clients while at the same time growing your book of business. It is also likely to minimise any miscommunication that can easily occur when negotiating terms.

Respond promptly to queries

In the renewal process, a comprehensive submission will get you a long way but it’s inevitable that an underwriter will come back with queries. A proposal form and supplementary documents can only tell them so much, so they will sift through this information and highlight any curiosity they have before offering terms.

Common queries include:

• Additional information on the organisation’s business activities
• Management experience of directors and officers
• Clarification of entity ownership
• Clarification of employment structure (including the use of subcontractors)
• Clarification of an organisation’s revenue, assets, and liabilities
• The nature and amount of any past claim settlement

By responding promptly to these queries, it displays attentiveness to the underwriter’s request and maintains a degree of quoting momentum. This will help to improve the chances of receiving attractive terms within your required timeframe, so these can be presented to your client well in advance of the due date.

Remember that terms are negotiable

Once a policy has been in place for a few years, it is easy to forget that the terms of coverage are negotiable each and every renewal. In the marketplace, standard coverages evolve and terms that were once competitive, with respect to coverage or pricing, can gradually fall behind the offerings of other insurers.

During the renewal process, it is good practice to review the coverages in place and compare this to what is available in the current environment. Even without going to the trouble of seeking alternative quotations, upgrades and improvements can be requested from the holding insurer in good faith.

Underwriters are open to having these types of conversations and are often willing to update policies if asked nicely. Examples of such changes include increased sublimits, discounted premiums, or where appropriate, changes to the retroactive date in softer market conditions.

Explore risk management ideas

As a diligent and attentive advisor, you can set yourself apart by exploring risk management ideas in the broader sense. Instead of just advising on board of directors liability, expand the scope of your role and open up discussions about risk across the entire spectrum of an organisation’s operations.

This is particularly relevant for many small and medium enterprises, who may not have a formal directors indemnification agreement or be aware of industry best practices. Owner-operators are often busy working in their businesses and can always use an extra set of eyes to point out where risk management can be improved.

You don’t necessarily need to have all the answers, just an interest in developing your client’s business. It starts by asking the right questions and listening to the response. If points are raised where further improvement can be made and you are unable to assist directly, refer them to someone who can.

Educate your client

Directors and officers liability insurance can be complex. For your clients, who are busy people in their own right, the intricacies of directors duties may not always be front of mind. Take a moment to help educate them about the risks they face and how their insurance programme is designed to protect them.

Important topics include:

• A policy’s insuring clauses, extensions, exclusions, and conditions
• The process involved in making a claim notification
• Common claims, by oganisation size and industry sector
• How a change in control can affect coverage, and the need for run off insurance

By opening up a discussion and listening to your client’s concerns, you will be better equipped to understand their challenges. Additionally, a better-educated client will be in a stronger position to identify their own risk exposures and work together with you to develop an adequate solution.

Double-check documents

Throughout the renewal process, it is essential to double-check documents. Everything that you send and receive, from emails to quotations, and especially the schedule and wording, should be carefully inspected. That way you and your client are getting what you ask for, and avoid any chance of future embarrassment.

Because these types of insurances are technically non-renewable (and instead must be replaced), holding insurers will often revise their terms from one year to the next. To ensure you don’t get caught out, make sure you double-check the terms issued. If at any stage you spot something out of the ordinary, flag it for discussion.

Underwriters should be available to clarify the intent of a particular clause or endorsement. For example, which party – the insurer or insured – has the duty to defend an underlying claim? It can be helpful to have a broader understanding of coverage history to ensure that any documents issued are an accurate reflection of the agreed terms.

Gently upsell products and services

As an advisor, the reality is that sometimes you need to sell – sell yourself, your firm’s services, and an insurer’s products. This may seem like a bit of a drag at first, but it doesn’t need to be. Because with the right attitude, friendly customer service and competent product advisory are often all it takes to grow your book of business.

Start with providing alternative options at renewal – such as an increased limit of liability, variations of the self-insured retention, and other coverage enhancements. Next, consider using the information already contained within the proposal form to provide indicative quotations on policy classes that are not yet in place.

Additional coverages for consideration can include employment practices liability insurance and Side C coverage, to name a few. While insurers may not necessarily be prepared to provide binding quotes, they should be able to offer an indication of what limits are available and at what price, subject to the receipt of further information.

Put conversations in writing

When advising a client, it is important to recognise that they may not always take up your suggestions. Try to be patient and don’t take it personally, but be sure to document the conversation. Clients are often well-intended, however, it’s not unusual for the details of a discussion to fade long after its occurrence.

It is only human for the memory of a conversation to change over time. By documenting its details immediately after its conclusion, you can protect all parties by recording an accurate representation. These notes should outline what was discussed and when, so it can be referred to again in the future if need be.

From a professional standpoint, taking a written record after a meeting or phone call is very important. It is one of the simplest things that can be done to reduce your own risk of liability. In the event of a dispute with a client (often after an unexpected loss), many advisors have relied on such records to justify their account of what was actually discussed.

Time of year matters (for renewal)

When arranging cover for the next policy period, think about what time of year is best to have the programme renew. Most larger organisations already have their various policies renew together. But what should also be considered is at what time of year this occurs – as it can have a material effect on the terms received.

Insurance markets become crowded at certain periods of the year, particularly around the end of each quarter, calendar year, and financial year. During these times, underwriters’ inboxes fill with quotation requests from brokers. It also marks the time that many insurers renew their own reinsurance treaties – so things are especially busy.

By deciding to renew a programme away from these peak times, insurers are more likely to be available to quote. Additionally, less activity in the market can lead to increased competition to win business. This means that it might be possible to acquire more attractive terms than would otherwise be possible.

Provide clear payment instructions

Once a renewal is bound and closed for another year, it is important to ensure that payment is received in a timely manner. Many organisations, particularly those with larger programmes, may not have the budget to pay their premium immediately. In these instances, try to have an alternative payment method at hand.

This is particularly important for any policy that includes prior acts coverage, which may be cancelled by an insurer if left unpaid, with little hope for backdating its reinstatement. Instead of leaving things to chance, consider offering your client access to a premium funding facility; which is available from many banking institutions.

Premium funding is an effective way of staggering insurance payments throughout the policy period. The financier, who effectively pays the premium up-front, does so for an interest payment on top of each monthly installment. For many organisations, this additional cost is worthwhile for the flexibility it provides.

Conclusion

The renewal of a directors and officers liability insurance policy is an interesting and challenging process. Securing coverage for another year is essential for protecting an organisation and its management, but market conditions are often uncertain. Hopefully, this post has provided you with a number of helpful tips for achieving a better renewal outcome.

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