The D&O market is hardening as a result of the subprime credit crunch, a leading PI broker says.

OAMPS National Manager Professional Risks Byron McPherson says capacity is tightening and rates rising as the local market starts to see the effect of the high-risk lending policies in the US home mortgage sector.

“The impact we are seeing is more restrictive terms and conditions and higher premiums, meaning brokers need to be more resourceful in terms of coming up with workable solutions for clients,” Mr McPherson told insuranceNEWS.com.au.

He says D&O is moving towards “a classic hard market”, with insureds taking more of the risk themselves.

“The biggest issue will be managing client expectations, with brokers’ skills coming more to the fore,” he said.

Chubb Specialty Insurance Regional Manager Jason Howard agrees the D&O market for financial institutions is starting to harden.

“Chubb is seeing a tightening of cover for financial institutions, with rates starting to firm as well as insurers taking a greater scrutiny on the deployment of their capacity,” Mr Howard said.

“We expect this to increase momentum into the balance of 2008, with insureds and brokers reviewing cover in the context of key factors such as the policy’s coverage terms and their insurer’s financial strength, reputation and expertise in managing claims.”

But he doesn’t believe rates are rising in the commercial D&O market overall.

“We have yet to see this market development fully extend into the commercial D&O sector other than risks that are directly tied to the credit crisis,” Mr Howard said. “As a result, our expectation is that rate reductions may well continue although they will not be as significant as they were in 2007.”