What is directors and officers insurance?
Directors and officers Insurance (otherwise known as D&O insurance) offers financial protection for individuals against civil, criminal and regulatory proceedings, while acting in a managerial capacity on behalf of the company.
D&O insurance is typically offered under management liability insurance and packaged with corporate legal liability which offers the company protection, as well as the individuals.
Directors and officers insurance will pay legal costs incurred in defending allegations and damages arising from any award or settlement.
Who needs directors and officers insurance?
Every incorporated business should consider directors and officers insurance. The law generally seeks to protect individuals from personal liability where they have acted in good faith and complied with their responsibilities.
However, any director, partner or employee acting in a managerial capacity on behalf of the company that fails to meet their legal obligations can be held personally liable. We've produced a useful guide called: Why company directors don’t need D&O insurance?
Directors and officers insurance can provide valuable cover for a legal defence and protect the personal assets
of individuals who take leadership roles in any business. If you operate a non-profit organisation, please see our trustee indemnity insurance
How does a directors and officers policy work?
Directors and officers insurance policies are difficult to navigate and understand, utilising the services of a specialist D&O insurance broker will make the process of purchasing and claiming on your insurance simple.
We’ve produced a useful guide to assist with understanding the mechanics of a directors and officers insurance policy: How does a directors and officers insurance policy work?
If there’s an allegation that names you individually, you want to make sure you have adequate directors and officers insurance to ensure a good legal defense.
Why purchase directors and officers insurance?
Directors and officers insurance cover provides a cost-effective mechanism to protect those individuals in leadership roles should an allegation of a wrongdoing occur.
Civil, regulatory or even criminal allegations made against individuals can be very costly and time consuming. A directors and officers insurance policy offers protection from a variety of sources, including customers, competitors, regulators, administrators, creditors, shareholders and employees.
It's worth remembering that individuals can be held jointly liable for the actions of others. Therefore, an error on the part of one individual can have financial consequences for the others, even though they had no knowledge of the wrongdoing.
Directors and officers insurance claims examples:
Directors and officers insurance claims can arise from a variety of circumstances, including but not limited to:
Breach of law
Breach of regulation
Employment practice claims (against D&O's)
Decisions exceeding authority
Inaccurate or inadequate disclosure
Mergers and acquisitions
Claims made on behalf of the company
How is directors and officers insurance cost calculated?
Each insurer wil take their own view, but the size of your company and industry will have a direct impact on how your directors and officers insurance cost is calculated.
The most important consideration for insurers is your financial standing and operational history. If you maintain profitability with a positive balance sheet, you will more likely obtain favourable D&O insurance terms.
Directors and officers insurance underwriters will more often than not, review your latest reported accounts to consider your likelihood of failure. The below identifies different industry segments and their relative exposure to D&O insurance claims:
Increased overseas litigation
The scope of your activities within different jurisdictions (UK, USA, Canada, Europe and Rest of the World) is an important consideration for directors and officers insurance underwriters.
The USA remains the most litigious country in the world, operating subsidiaries in this territory can significantly impact your company's D&O insurance exposure.
How much directors and officers insurance do you need?
The limit of directors and officers insurance you purchase will depend on your perception of the exposure and how much you are prepared to spend to mitigate the risk.
We recommend you consider more than one option to appreciate the cost to increase your limit of liability. It is also worth considering that defence costs on average amount to 65% of the total cost of D&O insurance claims.
The below directors and officers insurance guide is based on what companies typically purchase. However, you should consider your individual circumstances and note the limits below may not be sufficient to cover your defense costs and damages.
Having undergone a capital raising
Note if you've raised capital to fund your operations and you are still early stage, you should take into consideration your asset size and not your turnover, when deciding on how much directors and officers insurance to purchase.
Get indemnity™ directors and officers
At get indemnity™ we're seeing a hardening of the market for directors and officers insurance, with some insurers seeking increased premiums as a result of Covid-19. However, there remains plenty of competition if you maintain good working capital.
If your business is perceived as carrying a low to medium hazard exposure (typically viewed as being financially stable, less than £100m in turnover and not operating in high risk industry class) competition remains.
D&O underwriting requirements
For companies that have been trading for less than two years or have a negative net worth, additional information such as a business plan, financial projections or evidence of additional capital may be required by D&O insurance underwriters.
How to obtain directors and officers insurance quotes?
At get indemnity
we are a specialist D&O insurance broker
and have the capacity to identify a range of solutions available from the wholesale market.
If your business is perceived as carrying a high hazard exposure, your directors and officers insurance broker should engage with you early to ensure sufficient strategic planning for a successful renewal.
Management liability insurance
To ensure your personal assets are protected, complete our online application
and apply for management liability
to obtain your directors and officers insurance quotes.
This guide is for information purposes and based on sources which we believe are reliable, the general risk management and insurance information is not intended to be taken as advice with respect to any individual circumstance and cannot be relied upon as such.