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Companies Grapple With Higher Insurance Costs Across All Types of Coverage
Lance Hicks, a board member of two small companies, took drastic action when the firms were hit with skyrocketing insurance premiums for liability coverage.
"I had to resign because they (the companies) could not afford to pay for my insurance," said Hicks, president of Irvine-based stock brokerage Finance 500 Inc.
Rising insurance costs are sparing neither small nor large businesses in Orange County. Companies are changing the way they do business in reaction to the higher insurance burden.
The rising costs are a result of many factors, including the terrorist attacks last September, rising medical bills and the California legislature's latest bill on workers' compensation.
And corporate scandals at Enron and WorldCom threaten to push premiums even higher. Standard & Poor's estimates that corporate problem credits in the insurance industry include a $5.3 billion exposure to WorldCom and $3.9 billion of potential losses from Enron.
Meanwhile, rates for commercial coverage-property and casualty and directors and officers, among others-are up 20% to 30% this year, according to P.J. Crowley, vice president of the N.Y.-based Insurance Information Institute, a nonprofit group supported by property and casualty insurers. Premiums for directors and officers cover
age are up big, particularly for any firm linked to an accounting regularity "or that has done an initial public offering in the past couple of years," Crowley said.
Greg Yurkovich, an associate at Newport Beach-based venture firm Forrest Binkley & Brown, said the company's partners sit on the boards of many of the startups that they have invested in.
"The increases are impacting early-stage companies that aren't flush with cash," Yurkovich said.
And with insurance companies burned by the recent spat of corporate malfeasance, rates aren't just going up--coverage is going down.
Charles Ruck, a mergers and acquisitions attorney in the Costa Mesa office of Latham & Watkins, says one...