At a glance
- D&O cover is essential for companies of all sizes, but many customers may be reluctant to have it
- D&O cover can protect companies from potentially devastating claims cases
- Read our five reasons why D&O cover is essential and why brokers have a duty to offer it
It’s important to have, easy to underwrite and not as expensive as it is perceived to be. Yet too few UK directors and owner-managers have director and officer (D&O) coverage.
“Society is now more litigious and D&O cover offers a wide safety net. The perceived need for it is low, but if you get your clients to scratch below the surface and ask them to think about the exposures they actually have, the tone can change,” says Paul Carragher, Financial Lines Senior Market Underwriter at Zurich.
Here are five possible objections to D&O cover that customers might have and why it is important for the protection of their business that brokers highlight the benefits to them.
1. D&O is only for those running public limited companies or in very large private businesses
Many directors automatically assume that D&O cover is only for multi-millionaire businessmen, such as Lord Alan Sugar or Donald Trump, who may be susceptible to potential liability quite frequently. But that is not the case.
“Every director or officer is open to claims”, says Paul. “Claims can come from absolutely anywhere: customers, competitors, suppliers, employees, the company itself regulators, as well as governmental and law enforcement agencies.”
A good way to frame the conversation is to compare D&O cover to catastrophe cover, something that we are all used to taking out as individuals to protect our personal assets.
2. We don’t need D&O cover because the directors are covered by their limited status
Many directors assume they are covered by their limited status, but this is not the case.
“Shareholders’ liability is limited, but that of directors and officers is not, even if an individual is both,” says Paul. “Brokers need to point out that the liability that is attached to the role, and so the director’s or officer’s own cash, home, pension pot, other assets and even their liberty is at stake should a claim occur.”
3. It’s too expensive
It always comes down to cost, but this can be easily dealt with as adding D&O can be as low as an additional £100. “It’s the company, not the individual, that pays the modest premium,” says Paul.
D&O cover is not as expensive as it is perceived to be and is always going to be cheaper than the possible alternative.
4. It’s too complex (for both customers and brokers)
As with all things, people are wary of what they don’t fully understand and might reject D&O, without fully realising the potential benefits.
Society is now more litigious, not just shareholders, and D&O cover offers a wide safety net. The perceived need for it is low but if you get your clients to scratch below the surface and ask them to think about the exposures they actually have, the tone can change
Paul Carragher, Professional and Financial Senior Market Underwriter at Zurich
“Underwriting D&O has been hugely simplified from where it was even 10 years ago,” says Paul. “For anything less than a public limited company, we only ask for financial information such as turnover and confirmation that they are solvent. It’s often as simple as that.”
However it’s not just customers that can find it complicated, brokers can too.
“Historically, D&O underwriting used to be about the accounts,” Paul says. “The insurer would ask for two or three years of financial information and that alarmed many brokers.
Just as an hour spent in a D&O training session is enough to acquaint brokers with the knowledge they need to obtain a quote and explain the benefits to their clients, says Paul.
5. It’s not a real risk
A common assumption by many directors is that in the event of an incident involving directors, the company will pay their defence costs should an action be taken against them.
This may be true in some circumstances, but there are many situations where the company may be unwilling, unable or not permitted to protect their directors and officers in this way.
There is another reason why brokers should strongly consider routinely encouraging their customers to take D&O cover despite any objections they may have, and that is because they unarguably have a duty to do so, says Paul.
“Any broker who does not advise their customer on D&O is on thin ice if a claim comes in,” he says. “This is now a mass market cover, and brokers who continue to shy away from speaking to customers are exposing their own professional indemnity policy to future claims.”
For further information on Zurich’s D&O offerings, head to BrokerZone.