Best Practices for D&O Insurance Renewals

Apr 25, 2024

D&O insurance provides essential safeguards for a company's board members and executives by acting as a financial safety net for their indemnification rights and personal assets in cases where they face claims or investigations related to their service to the company. Additionally, D&O insurance offers direct financial protection and value to the company that acquires it, such as reimbursing the company when it indemnifies a director or officer and insuring the company against its own liability for securities claims or certain other claims (in the case of private companies).


Considering the significance of D&O insurance in a company's corporate governance and risk management, it is vital for companies to thoroughly evaluate the procurement and renewal process for their D&O insurance. Unlike many other insurance policies, D&O policies are not standardized or regulated, making the procurement and renewal process more intricate. While each company's specific circumstances will determine the required coverages, several key issues and policy provisions should be considered by all companies involved in the procurement or renewal process. We’ve put together a few helpful pieces of advice for consideration on the renewal process that works best for your organization.


The Best Practice to Renew Your D&O Insurance

1. Start Early

The renewal process for D&O insurance can be intricate and time-consuming. To ensure a smooth and successful renewal, begin preparations at least 90 days in advance. This time frame allows you to review your existing policy, gather necessary documentation, and have informed discussions with your broker or insurance carrier.


2. Assess Your Risk Profile

To negotiate the best terms and conditions for your D&O policy, have a clear understanding of your organization's risk profile. Consider factors such as the company's size, industry, financial performance, litigation history, and regulatory environment. Regularly updating your risk profile enables you to identify any new exposures and address them proactively during the renewal process.


3. Review Past Claims and Losses

Analyze your organization's claim history and identify any trends or areas of concern. Understanding the types of claims your company has faced can help you determine if your current policy offers adequate coverage or if adjustments are needed. Additionally, sharing your loss mitigation efforts with your insurer may result in better pricing or terms.


4. Evaluate Policy Limits and Coverage

As part of the renewal process, reassess your policy limits and coverage. Determine if the current limits are sufficient or if adjustments are needed based on your evolving risk profile. Also, consider incorporating additional coverage endorsements to address any new exposures or regulatory requirements.


5. Engage with Stakeholders

D&O insurance affects a wide range of stakeholders within the organization. Thus, it's essential to involve key decision-makers, such as the board of directors, legal counsel, and financial officers, in the renewal process. Their insights can help identify coverage gaps and ensure the policy meets the organization's needs.


6. Partner with a Specialized Broker

A knowledgeable and experienced broker who specializes in D&O insurance can be an invaluable resource during the renewal process. They can help you navigate the complexities of the market, negotiate with carriers, and secure the best terms and pricing for your policy.


7. Communicate with Your Insurer

Open communication with your insurer is crucial for a successful renewal. Provide them with up-to-date information about your company's financials, governance practices, and risk management initiatives. Demonstrating transparency and proactive risk management may result in more favorable terms and conditions.


Pitfalls to Avoid When Renew D&O Liability Insurance

Avoiding Gaps in Coverage

Be mindful that D&O policies aren't standardized, and different carriers use different forms, and therefore provide varying coverages. When renewing, ensure retroactive dates are consistent, and closely review insuring provisions and exclusions. Examine if excess policies follow the primary policy's form and weigh the benefits and risks of having your entire insurance program with the same carrier.


Knowledge, and Existing Claims or Suits

Be aware of knowledge and existing claims or suits. Identify who must have knowledge of a potential claim to provide notice and ensure the policy has severability provisions. Check for exclusions related to intentional or criminal acts and understand their implications.


The Definition of Insured

Ensure the definition of "insured" aligns with your intended coverage, avoiding overly broad definitions that may dilute the coverage. Determine who you want to be covered by the policy and make sure the definition reflects that decision.


Reporting Periods and Notice of Circumstances

Finally, pay attention to reporting periods and notice of circumstances. Provide notice to your carrier early and often to minimize adverse effects on premiums. Make sure compliance with notice provisions isn't a condition precedent to coverage. If changing carriers, consider an extended reporting period if retroactive or prior-acts dates are shortened.


Tips for Choosing a D&O Renewal Date

Choosing the optimal insurance renewal date depends on various factors, such as market conditions, company preferences, available resources, and financial reporting. In a hard market, it's advisable to renew during the first half of the year, whereas a soft market may offer better deals later on. Consider internal factors like sales cycles, board meetings, and reporting deadlines to minimize stress. It's also important to avoid heavy renewal dates, such as April 1, July 1, and January 1, in order to secure adequate underwriter attention. Providing up-to-date financial information can ease the underwriting process and alleviate pressure on policyholders. Lastly, it's best to steer clear of year-end renewals due to decreased focus and increased vacation time in the industry.


Effectively managing D&O insurance renewals is vital to securing optimal coverage and safeguarding your organization's leadership. By starting early, assessing your risk profile, engaging with stakeholders, and partnering with a specialized broker, you can help ensure the renewal process results in a policy that addresses your organization's unique needs and exposures.



Checklist for Renewing D&O Insurance Coverage

D& O Insurance Renewals: What Corporate Policyholders Need to Know in the “New Normal” - Insurance R

Choosing a D&O Renewal Date | McGriff

Key considerations for companies in procuring or renewing D&O coverage

Directors and Officers Coverage Renewal: Pitfalls to Avoid

One More Challenge for Directors and officers: Their 2021 D& O Insurance Renewal

Checklist for Renewing D&O Insurance Coverage