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Pricing and Deterrence

Pricing and Deterrence

Chapter:
(p.77) Chapter Five Pricing and Deterrence
Source:
Ensuring Corporate Misconduct
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226035079.003.0006

This chapter, which explores whether the underwriting and pricing of Directors' and Officers' liability (D&O) insurance preserves the deterrence function of shareholder litigation, examines how insurers evaluate the riskiness of the insured in underwriting D&O insurance and how they price risk. It discusses the reasons offered by study participants to doubt that the differential pricing of D&O premiums deters corporate wrongdoing or provides adequate incentives to optimize corporate governance. The chapter concludes that while D&O insurers do seek to price on the basis of risk, their efforts are not enough to strengthen the deterrence function of shareholder litigation.

Keywords:   D&O insurance, shareholder litigation, deterrence function, insurance pricing, risk, underwriting, corporate wrongdoing, corporate governance

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