The growth of an organization, no matter how small or big depends on the quality of the key decisions taken by its directors and senior executives. If you run a business and are leading a team of board members, you know how difficult it is to keep all your stakeholders happy and satisfied. However what would happen if your key executives face risks and financial losses due to the decisions you have made?
A Directors and Officers (D&O) liability insurance policy come into effect to deal with such situations. It is a misconception that D&O Insurance is only suitable for large, high profile companies.
Why D&O Insurance?
Dissatisfaction amongst various stakeholders, customers, end consumers, suppliers, or even employees, can arise any time in the company. Irrespective of the annual profits or turnover of your company, they could ask for compensation, which could lead to legal battles and eventual losses.
A D&O insurance policy can help you deal with legal issues financially and in other ways.
Why Does Your Business Need D&O Insurance?
- Protection from a Wide Variety of Litigations
A private organization is almost as likely to face losses related to lawsuits as a public organisation. Typically, there are board members who manage business activities on various levels. Their KRAs often put them in situations where they are held accountable.
If you think you do not need D&O insurance for your small organization, think again. A small company is at a higher risk of financial losses arising from a lawsuit than a big company that has enough money and resources to endure prolonged litigation. Inexperienced executives may make mistakes such as breach of fiduciary duties or alleged misconduct that could lead to litigation against your company.
D&O insurance will cover the claims related to the damage caused to a stakeholder to protect you and your company.
- Reimbursement of Legal Costs
D&O lawsuits can occur at any time, and you won’t see them coming. Claims or losses can reach six or more figures of value based on allegations of wrongful acts, financial mismanagement, or errors in judgment.
Directors and Officers liability insurance protects innocent directors of your company who are involved in the litigations. Once the lawsuit rules in their favor, you will get the lawyer’s fees and other legal expenses reimbursed into your bank account by the insurer.
So, paying for D&O insurance premium is worth investing in – it can prevent your organization from facing large losses.
- Makes it Easier to Attract New Directors
When directors or senior officers look for new opportunities, they are conscious that they need to have adequate protection for their personal assets. In many cases, people are specific about getting D&O coverage as a job-related benefit and ask for it as a condition of employment.
Having a comprehensive D&O insurance policy can attract new directors to a vacant position on your company’s board. It shows that you consider the risk of D&O cases seriously and are ready to back them up in the event of a claim, which further increases the corporate attractiveness of your company as an employer.
Further, if your company is backed by venture capitalists (VCs), they may ask for a D&O insurance policy before funding your business. This policy will serve as a means to safeguard their investment.
Cost of D&O Insurance
There is no one-size-fits-all D&O policy that every organization can buy at a pre-determined rate. In fact, you should be careful and avoid buying such policies for your organization in the first place if offered.
The premium you need to pay for buying a D&O policy depends on the liability coverage you need for your business, its revenue, the number of directors and officers to be covered and the risks pertaining to your specific industry.
Keep in mind that the actual price of a D&O insurance policy for your company can only be estimated once you connect with an insurer to buy one. In case you are unsure about the coverage and benefits of this policy, you can consult a reputed insurance broker such as SecureNow, to help you make the best decision.
