Directors and Officers Liability Insurance

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What drives the cost of a D&O policy?

A Directors and Officers Liability Insurance Policy covers the legal costs faced by the directors and officers of an organisation. If they are faced with a lawsuit due to any error committed by them, the D&O policy protects them. The policy also pays any settlements payable to third parties as compensation for the errors of directors and officers. Coverage under the D & O policy is quite comprehensive so that an organisation and its directors and officers do not face a financial loss in case of any errors.

Premiums of a D&O policy are calculated after considering many factors. Some of the important factors which drive the cost of a D&O policy include:

Age of the company

If the company has been in existence for several years and has performed well over the years, it faces a low risk of claim. New and developing companies, on the other hand, are prone to claims since they have a limited history and their directors might not have extensive experience in making managerial decisions.

Financial stability

The debt owed by the organisation is an important consideration at the time of underwriting a D&O policy. If the company has high debts, it might face insolvency or bankruptcy in the course of fighting a lawsuit. As such, the D & O policy would have to cover the cost of the lawsuit which would increase the instance of claim.

Financially stable companies face fewer lawsuits. Whereas financial instability increases the incidence of claims, and premiums charged under a D&O policy.

Industry in which the company is operating

The industry also plays a role in premium determination. If the company works in a risky industry that involves frequent lawsuits, the premium would be high. For instance, the premium would be higher for an investment banking or security trading company than a small non-profit business. Ironically, legal firms are considered high risk for a D&O.

Nature of the company

If the company is a listed company, it faces a higher risk of lawsuits from shareholders who feel that they don’t get their money’s worth from the company’s profits. The directors and officers of a listed company are, therefore, constantly under scrutiny which raises the incidence of claim under the D&O policy. In fact it is mandatory for listed companies to own D&O insurance. Therefore, listed companies have to pay a higher premium than non-listed ones.

Size of the company

A large company is prone to facing a large lawsuit because it has a large number of third parties whose interests would suffer in case of any mistake committed by the company’s directors. Thus, the premium for D & O policies issued to large companies is higher.

The trading pattern of the company

If the company has trading interests in the foreign markets, it faces a higher risk of D&O claims. This is because when the company is operating internationally, it has to follow international laws as well as Indian laws. This might create confusion and directors might make a mistake in abiding by all the applicable laws. This would result in a claim. Given the higher chances of claims, premiums are higher.

These are some of the driving factors for premium calculation under a D&O policy. Organisations should understand these cost drivers so that they know how insurance companies calculate premiums. You should analyze all these factors in detail (or you could take a shortcut and buy through SecureNow)

How SecureNow can help

SecureNow provides you various options for a D&O policy that offers the best benefits. The costs are also likely to be significantly lower (at least 20% less price) than what you would otherwise get from the market. Click here to see our offerings and buy a D&O policy online

You can email us on support@securenow.in for more details or visit www.securenow.in

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