Insurance Curator Directors & Officers (D&O) run‑off (commonly called “tail”) coverage is a high‑stakes purchase for U.S. corporations, private equity portfolio companies, and executives exiting an organization. Pricing is driven by legal exposure, claims history, corporate events (M&A, bankruptcy), and market conditions. This article explains the key cost drivers, realistic pricing ranges, insurer behavior, and negotiation levers—focused on the United States (with examples in New York City, San Francisco, and Houston).
Quick summary — what “tail” buys and why price varies
- Tail coverage extends reporting for claims‑made D&O policies to cover claims from wrongful acts that occurred during the policy period but are reported after policy termination.
- Pricing is typically quoted as a multiple of the expiring annual D&O premium (the “multiple” model), or as a flat erg with layered structures for larger programs.
- Typical U.S. market multiples today commonly range from 100% to 300% of the last annual premium, with outliers above or below depending on risk. Marsh market commentary and insurer guidance support these ranges.
Primary cost drivers
1. Claim and litigation environment
- Recent or ongoing claims (regulatory investigations, class actions) dramatically increase tail cost; active lawsuits can push multiples toward the 200–400% range.
- Industry litigation trends: technology and life sciences see frequent securities suits in San Francisco and New York; energy and oil & gas (e.g., Houston) have higher environmental and bankruptcy‑linked exposure.
2. Corporate events and triggers
- Mergers, IPO withdrawals, resignations, and bankruptcies are common run‑off triggers. Bankruptcy or insolvency creates a spike in D&O tail pricing because creditor claims and trustee actions substantially increase severity and frequency of suits.
- See guidance on event triggers in When Is Tail Coverage Required? Triggers and Best Practices in Directors and Officers (D&O) Liability Insurance.
3. Claims history and prior acts exposure
- A history of prior claims or a broad “prior acts” exposure (gaps in retroactive dates) increases underwriting concern. Firms with multiple prior act claims can face multiples in excess of 300% or be quoted with sublimits.
- For more on retroactive dates and managing historical exposure, see Prior Acts and Retroactive Dates: Managing Historical Exposure Under Directors and Officers (D&O) Liability Insurance.
4. Policy limits and structure (company vs. individuals)
- Larger aggregate limits require more reinsurance and capital from carriers, increasing cost. Individual indemnity considerations for senior executives (side A only vs. full run‑off) change pricing materially.
5. Company size, revenue and balance sheet strength
- Public companies or large private firms with significant revenues pay substantially more than closely held small businesses. For example:
- Small private company (annual D&O premium $25,000): run‑off quotes from niche insurers may start near 100%–150% ($25k–$37.5k) for a one‑ to three‑year extended reporting period (ERP).
- Mid‑market company with $500,000 expiring D&O premium (common in NY/SF): 150%–250% ($750k–$1.25M) for broader run‑off solutions.
- Larger public company with $5M premium: carriers often propose layered structures, and perpetual (full) run‑off can reach 200%–400% of the expiring premium depending on risk.
6. Market cycle and capacity
- Hard markets increase multiples across the board; soft markets reduce them. Insurer appetite (Chubb, AIG, Travelers, Hiscox, Beazley) and reinsurance capacity shape pricing and terms. See insurer program overviews for context: Chubb, AIG, Hiscox.
- Chubb D&O program pages describe run‑off and side A options commonly offered to U.S. clients: https://www.chubb.com/us-en/business-insurance/directors-and-officers.html
- AIG’s business D&O solutions and run‑off capabilities: https://www.aig.com/business/insurance/d-and-o
- Hiscox public/private D&O offerings for smaller risks: https://www.hiscox.com/business-insurance/directors-and-officers-insurance
Realistic pricing examples (U.S. market, illustrative)
| Company profile (U.S. city example) | Expiring annual D&O premium | Typical run‑off quote (range) | Notes |
|---|---|---|---|
| Small private tech startup (San Francisco) | $25,000 | $25k–$40k (100%–160%) | Narrow ERP, short reporting period common |
| Mid‑market private firm (NYC) | $500,000 | $750k–$1.25M (150%–250%) | Broader ERP or perpetual buyback increases toward top end |
| Public company or private with complex liabilities (Houston energy firm) | $5,000,000 | $10M–$20M (200%–400%) | Bankruptcy or ongoing claims push toward 300%+ |
These ranges align with market analysis from brokers and industry reporting; exact quotes vary by insurer, underwriting appetite, and tailored terms. See Marsh D&O market commentary for U.S. trends. https://www.marsh.com/us/insights/research/d-and-o-market-update.html
How specific insurers position run‑off (examples)
- Chubb, AIG and Travelers are often the go‑to for mid‑to‑large corporate run‑off placements—they offer layered solutions, side‑A only run‑off, and reinsurance‑backed perpetual extensions. Pricing from these carriers tends to reflect wider capacity and capability (often at the mid to upper end of market multiples). (See Chubb and AIG links above.)
- Specialist carriers (Hiscox, Beazley) frequently underwrite smaller corporate or executive exposures and sometimes offer more competitive multiples for clean, low‑claims profiles.
Negotiation levers brokers and boards should use
- Present clean, consolidated loss runs and defense reserve details; demonstrate robust corporate governance reforms to reduce perceived future risk.
- Consider a layered approach: short‑term ERP + limited perpetual buyback on top layers to cap immediate spend.
- Use auction/broker panels to create competitive tension among carriers; different carriers price the same exposures very differently in the U.S. market.
- Negotiate retroactive date, allocation, and severability clauses—these materially affect insurer willingness and price. For practical clauses to request, consult Negotiating Run‑Off Terms After an Exit: Practical Clauses Every Executive Should Request in Directors and Officers (D&O) Liability Insurance.
Alternatives and structured approaches
- Instead of a single perpetual buyback, buyers often elect:
- Extended Reporting Periods (ERPs) of defined years (1–6 years) at lower multiples.
- Layered portfolio approaches that use different insurers for different limits (see Portfolio Approach to Prior Acts: Layered Solutions for Legacy Exposure in Directors and Officers (D&O) Liability Insurance).
- Side‑A only coverage for executives where company indemnity is absent.
Checklist for U.S. buyers (quick)
- Obtain consolidated loss runs and litigation status.
- Identify triggers (M&A, resignation, bankruptcy) and notify carriers early.
- Get multiple bids and compare: price, retroactive date, carve‑outs, and insurer security.
- Consider captive or portfolio/umbrella layering for scaled cost control.
For a full purchasing checklist, review Checklist for Purchasing Run‑Off Coverage: Questions to Ask Your Broker for Directors and Officers (D&O) Liability Insurance.
Sources and further reading
- Marsh, D&O Market Update and commentary on run‑off pricing: https://www.marsh.com/us/insights/research/d-and-o-market-update.html
- Chubb, D&O product overview (U.S.): https://www.chubb.com/us-en/business-insurance/directors-and-officers.html
- AIG, D&O business insurance solutions: https://www.aig.com/business/insurance/d-and-o
By understanding the drivers above and approaching the market strategically (competitive quotes, layered structures, and careful negotiation of terms), boards and departing executives can secure the most cost‑effective run‑off protection for their U.S. exposures.