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Probability Updating and the Market for Directors’ and Officers’ Insurance

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  • Stephen G. Fier
  • Kathleen A. McCullough
  • Joan T. A. Gabel
  • Nancy R. Mansfield

Abstract

Over the past decade, much attention has been given to the topics of corporate governance and corporate risk management. One increasingly important insurance product associated with each of these issues is directors’ and officers’ (D&O) liability insurance. Given the interconnectedness that exists between D&O insurance, corporate risk management, and corporate governance, we exploit industry‐specific D&O data to explain how industries most associated with the corporate scandals of the early 2000s adjusted demand patterns during periods of certainty and uncertainty. The rich data set coupled with dramatic changes in the marketplace allows for the testing of insurance demand patterns and enables us to offer insight into the market's response to a unique type of loss shock. The results of this study suggest evidence in favor of demand‐side probability updating, whereby those industries most associated with the corporate scandals of the early 2000s adjusted the demand for D&O insurance during periods of greater uncertainty.

Suggested Citation

  • Stephen G. Fier & Kathleen A. McCullough & Joan T. A. Gabel & Nancy R. Mansfield, 2015. "Probability Updating and the Market for Directors’ and Officers’ Insurance," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 18(1), pages 55-75, March.
    • Handle: RePEc:bla:rmgtin:v:18:y:2015:i:1:p:55-75
    DOI: 10.1111/rmir.12029
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    1. Chang, Shih-Chung & Ren, Yayuan & Yeh, Jason, 2018. "The role of information: When is Directors’ and Officers’ insurance value-added?," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 189-197.
    2. Rafael Tonet Rensi & João Vinícius França Carvalho, 2021. "Operation Car Wash: Impacts on the Executives' Liability Insurance Market," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 25(2), pages 190386-1903.

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