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Pricing and Deterrence

Pricing and Deterrence

(p.77) Chapter Five Pricing and Deterrence
Ensuring Corporate Misconduct
University of Chicago Press

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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