Corporate leaders are an essential part of a company’s business. No matter how large or small, a company needs to protect its leaders from the possibility of being sued.
Directors and Officers (D&O) liability insurance safeguards the personal assets of corporate directors and officers if they are personally sued by employees, vendors or competitors for alleged willful misconduct while acting in their capacity as a director or officer.
Coverage may also protect the business against the costs of a legal defense, which is important, because sometimes these cases can drag out for years.
D&O insurance helps a business attract and retain top talent. You may find it hard to recruit directors and officers unless you offer this protection.
A Directors and Officers policy typically covers the following type of claims:
Keep in mind, intentional illegal acts are not covered by a D&O insurance policy.
You may think D&O coverage is just for publicly-traded Fortune 500 companies. However, recent studies have shown that privately-held and non-profit organizations are just as likely to be sued as publicly-traded companies.
Regardless of your business’ annual gross revenue, your assets will be at risk if an officer or director of the company is sued. Any business, large or small, with a corporate board needs D&O coverage.
The average cost of Directors and Officers liability coverage can vary for multiple reasons. One reason is the risk associated with certain industries. For example, biotech and financial institutions have a higher risk of claims than other types of companies.
Second, the coverage can vary from insurance company to insurance company. Working with a broker who can find you the best coverage for the best price makes a big difference.
Commercial insurance rates are increasing across the board including D&O coverage.
D&O liability premiums increased in 2020 by a staggering 40%. This makes it harder to find the right D&O coverage in the commercial market.
The result is that business owners are looking for alternative ways to insure this risk. Many business owners, including our clients, have chosen to place the risk inside their captive insurance company.
Typically, D&O insurance claims occur less often but with a higher loss severity. Placing coverage inside a captive insurance company has the potential to reduce external spend on insurance. There is also an opportunity for profits if there are no claims for the policy period.