Directors and officers insurance quotes and policies can be obtained via direct insurers, specialist brokers and companies like NimbleFins, who report that D&O costs frequently start from around £500 a year.
The cost of coverage can differ greatly depending on multiple factors. The number of board members, the company structure, previous claims history, the industry type, and many other factors can affect the cost of premiums. This type of insurance coverage is designed to protect the financial and personal assets of employees from claims brought against them.
Legal proceedings can be brought against individuals acting on behalf of the company when errors or mistakes happen and D&O insurance will shield board members from financial liability and costs. Policies are purchased by the company and will cover things like legal costs and settlement payments associated with claims brought against employees.
As well as protecting current employees, D&O insurance will also shield from claims made against past and future company directors and officers provided coverage was in place at the time.
Directors and officers insurance costs
Directors and officers insurance can be obtained by many different company types operating in many different areas. There are no limitations on things like company size or industry and D&O insurance is used by organisations large and small that work in banking, construction, manufacturing, finance, and hundreds of other occupations.
The cost of coverage can start as low as £500 per year for smaller businesses but will increase based upon the level of risk, business size, number of employees, and several other variables. Other items that can affect the cost of D&O premiums are things such as:
- Previous claims history
- Financial stability
- Industry type
- Number of locations
- Experience of directors
- Company size
- Level of debt
While it may not seem relevant to consider the experience of directors this can be an important factor when determining coverage levels. Errors or mistakes resulting in claims are frequently caused by inexperienced staff members. For this reason, even non-profit organisations are investing in their own D&O policies to protect their employees and board members from potential problems.
Claims against individuals for alleged wrongdoing or mistakes resulting in losses can be covered under a D&O policy, but any actual illegal activity or intentional misrepresentation such as bribery or theft will not. The same applies to regulatory fines or penalties imposed by government offices or legislative bodies.
Who pays for Directors and Officers insurance?
While directors and officers insurance is designed to protect key employees of the business like directors, officers, managers, and supervisors, policies are purchased and premiums paid by the company. Shielding managers from claims arising in connection with their business actions or decisions is a part of most company’s risk management programs.
Claims can be leveraged against individual directors from many parties. Clients, investors, shareholders, competitors, and other company employees can all bring a claim for any number of reasons. Typical claims can be related to things such as:
- Breach of fiduciary duty
- Wrongful acts
- Breach of Trust
- Theft of intellectual property
- Non-compliance with workplace laws
- Wrongful Trading
- Misappropriation of funds
As claims are on the rise the cost of D&O policies is increasing rapidly, which could mean that some businesses may choose not to invest in coverage, leaving their directors personally responsible for any claims. A decision that could be unwise from a business standpoint.
Most company directors expect that their employer will provide them with some level of D&O insurance to protect their personal assets. Not having such insurance in place may reduce the number of directors willing to work for the organisation.
Additionally, for companies that are in start-up mode or seeking to raise capital, failure to provide D&O insurance may put off potential investors that prefer to have some level of protection in place before making a financial commitment.
Is D&O Insurance required by law?
Having D&O insurance in place may enable corporations to find the best employees and investors. It can also help to protect from claims that are brought by regulatory offices, like the HMRC or liquidators. As well as shielding current employees from personal financial losses it will also protect previous and future directors and officers.
While the benefits are clear, it is not required for businesses to obtain D&O insurance. A policy is not required by law, and there are no penalties per se for any company choosing not to have this type of insurance in place for their company operatives. However, with the advantages that D&O coverage provides and the protections it offers, most companies understand that it benefits them and their employees to have a directors and officers insurance policy in place.