Company cover set to rocket

By KEVIN TAYLOR

Big increases in the cost of professional indemnity and company director insurance are looming.

Premiums may rise up to 30 per cent and include more restrictions and higher excesses because of terrorism, corporate collapses and weak investment markets.

Insurance Council chief executive Chris Ryan said yesterday that professional indemnity policies were expected to bear the brunt of premium rises, and some companies might find it difficult to get all the cover they require.

Directors' and officers' liability costs rose last year and that trend also looked set to continue this year, he said.

Insurance companies offering director and professional indemnity cover in New Zealand include Lumley, AIG, Ace, NZI, Royal & SunAlliance, QBE, State and Tower.

Ryan said the main reason for the increases was a lack of capital capacity in the industry.

That money was in short supply because of poor investment market returns, the multibillion-dollar loss on the World Trade Centre and flood-related losses.

Other events that had impacted on capital adequacy included the collapse of HIH Insurance in Australia and Enron in the US, and worldwide public liability insurance crises.

Ryan warned that companies not well run might also find it increasingly difficult to obtain previous levels of insurance.

He said it was often the reinsurers - who back insurance companies - that were having difficulty obtaining the capital needed.

The president of the Association of Consulting Engineers, Adam Thornton, said its members had already experienced rises in premiums ranging from 20 to 50 per cent over the past 18 months.

The latest rises would inevitably have to be passed on to clients, thereby increasing the cost of professional advice.

Institute of Directors chief executive David Newman said he was not surprised premiums were rising.

"We can't not be affected by what's happening in the global insurance market, and I think it's just a cost that has to be paid."

Newman said New Zealand had more than 100,000 companies, all with directors. Although there were no requirements for director insurance, it was a prudent move by companies to have it.

Such policies typically covered directors against being sued by shareholders or third parties. The policies cost thousands of dollars.

For example, the board of Infratil has $10 million of directors' and officers' liability cover, at a premium of $15,500.