Scams, sleaze and scandals push up boards' premiums

By Heather Tomlinson

FTSE 100 companies are experiencing premium increases of up to 1,000 per cent for directors' and officers' liability insurance, according to two leading insurance brokers.

Concerns over US shareholder lawsuits, fear of investigation by the Financial Services Authority, and financial concerns about a company have combined to prompt the rises.

The insurance covers directors if they are sued for anything they do as an officer of the company.

One leading broker, Nick Foord-Kelcey at insurance broker Marsh, says he is aware of a FTSE 100 company which has seen a 10-fold jump in directors' insurance costs, and suspects there are two or three more, although 200 to 500 per cent increases are more common. One company now has to pay £2m for its board of directors.

Jardine Lloyd Thompson, a rival broker, has also highlighted rises of up to 1,000 per cent in its market overview report, published last week.

Although he would not reveal his clients, Mr Foord-Kelcey said he represents around half of the companies in the blue chip index. However, he says financial services firms, including insurers, are particularly vulnerable.

"For some [insurers] it has remained a very profitable class, and in my judgement the premium increases and reductions in cover now being imposed are excessive and an over-reaction to the declining profitability that was emerging," he said.

Increasingly, companies are also finding that insurers are dodging some types of risk, excluding legal claims from large shareholders, breaches of the Financial Services and Markets Act, false accounting and acts of terrorism, according to Mr Foord-Kelcey.

The directors' and officers' issue is also a problem for other companies with the whiff of scandal around them, including split capital investment trusts. "The problem is that there is a lack of capacity, so rates are going up," said Daniel Godfrey, the director-general of the Association of Investment Trust Companies.

Prices have risen for even the most conservative trusts. "There has been an increase in directors' and officers' liability insurance, which is particularly a feature of split capital trusts, even if they are conventional in structure," said Simon White, head of investment trusts at Dresdner RCM.