I Know Why Your Company Relies On D&O Benchmarking Data…Stop It!
The traditional approach used by public and private companies across industries to select Directors and Officers (“D&O”) insurance limits of liability and retention amounts has been to rely on peer benchmarking data.
Benchmarking data tells a company where it stands against its peers. In fact, there are many benchmark surveys available in the marketplace today based on thousands of insurance programs across many industries representing over billions of dollars in premium.
On the surface it sounds perfectly reasonable for a company to reference peer benchmarking data to ensure they are, “Keeping up with the Joneses” from an insurance perspective, right?
But the question any company must ask itself is...
“How can I truly know if the insurance limits and retentions that my peers are buying is the right amount for my own company?”
After all, relying on benchmarking data can simply mean that a company and its peers are all making the same wrong buying decisions!
The awful truth is that companies are not all the same and can be quite different from one another even when in the same industry seeming to have similar product offerings. A company will likely have a different risk tolerance, risk profile and overall insurance buying habits than its peers.
The insurance marketplace itself is an infrequent and generally inefficient transaction that requires a more strategic approach than using anonymous peer benchmarking to determine the best suited insurance program for an organization.
Wouldn’t it be ideal to have the ability to actually quantify the severity and frequency of future loss events at your company?
For example, if a company carrying $10 million of D&O insurance limit knew it had an 8.52% chance of experiencing a future regulatory action at an estimated cost of $14 million, that’s powerful information that can be used TODAY to build a more accurate insurance program and help protect against risk in the future.
Most companies struggle with how to capture and truly understand their D&O risk exposures.
But JLT, the largest specialty broker worldwide, has created the only platform available in the insurance marketplace that views a company’s risk over a 5-year risk horizon into the future to identify the most financially efficient insurance program.
JLT’s Cost and Volatility Analysis (“CVA”) Model measures the efficiency of D&O limits and retentions in an insurance program using Monte Carlo simulations to generate millions of risk scenarios over a 5-year period which are then annualized using Net Present Value (“NPV”) technique. This allows us to put future periods into the current year so we can better understand a company’s risk profile.
HOW YOUR COMPANY CAN TAKE ACTION
Put your company’s current D&O insurance program to the test.
Whether you’re a private or publicly-traded organization, JLT can compare your current D&O insurance program against alternative programs of interest that might be financially more efficient. Our analysis is easy to understand and board-ready.
And if you firmly believe your company’s current risk management program and D&O insurance needs are more than adequately addressed by your existing broker, JLT can confirm if you do indeed have the most efficient D&O insurance program.
Contact me at 1-212-510-1820 or via email at [email protected] to learn how JLT can assess your company's current D&O insurance program.
How does your company quantify the likelihood and cost of future loss events to ensure it has the most effective D&O insurance program?
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David Turner is Vice President at JLT, the largest specialty insurance broker worldwide. When not helping companies make better-informed insurance decisions, he can be found on a tennis court or enjoying the East Village of NYC where he lives with his wife and two children.