What is the Cost of Directors and Officers Liability Insurance Policy?

A D&O Liability Insurance Policy, also known as a Directors and Officers Liability Insurance Policy provides cover for legal expenses and compensatory damages for any wrongful act committed by the Directors and Officers of the Company in their managerial capacity.

 What does the D&O Insurance Policy Cover?

A D&O Insurance Policy covers wrongful acts committed by the Directors and Officers in their managerial capacity as mentioned above. These Wrongful Acts may include wrongful termination and sexual harrassment claims, violation of corporate governance regime, misuse of company funds, investigation by government authorities, violation of corporate governance norms etc.

D&O Insurance Policy Cost includes coverage for such claims. A D&O Insurance Policy provides coverage under the following sections:

Side A: Side A Coverage in a D&O Insurance Policy provides coverage to Directors and Officers in cases where the company is unable to or refuses to indemnify the Directors and Officers You can read our detailed blogpost on Side A Coverage in a D&O Insurance Policy.

Side B: Side B Coverage in a D&O Insurance Policy provides cover when the company indemnifies the claim against the directors and officers. The claim amount is paid by the D&O Insurance Provider to the Insured company.

Side C: Side C Coverage in a Directors and Officers Insurance Policy provides coverage in case claims are made against the company rather than the Individual Directors and Officers themselves.

The Premiums for D&O Insurance Policy have been rising in the last few years

D&O Liability Insurance Policy Premiums have been on the rise in the last few years driven by increase in bankruptcies which have driven lenders to take the Directors and Officers to Court. Additionally, cases of financial irregularities, claims of sexual harassment on Directors and Officers along with Security Related Claims by shareholders have also driven the demand for Directors and Officers Liability Insurance Policy.

D&O Insurance Policy is a complicated insurance Policy and the company seeking to purchase a D&O Liability Insurance Policy should take the assistance of an experienced D&O Insurance Broker who can assist in availing comprehensive D&O Insurance Coverages at competitive rates.

What is the Cost of D&O Liability Insurance Policy in India?

The Cost of Directors and Officers Liability Insurance Policy depends on a variety of factors which are listed below:

1. Limit of Liability: The limit of Liability of a D&O Insurance Policy is an important factor which determines the D&O Insurance Premiums. A Directors and Officers Liability Insurance Policy with a Limit of Liability of Rs25 Crores will have a higher premium than a D&O Insurance Policy with a Limit of Liability of Rs5 Crores.
2. History of the Business: Startup Companies and Early-Stage Companies have a shorter operating history and less diversified revenues. Thus, such companies have a higher risk profile as compared to the mature companies which have a proven track record. Thus, D&O Insurance premiums for young companies are higher as compared to mature companies.
3. D&O Policy Coverage: D&O Policy Coverage is also an important factor determining the cost of a D&O Insurance Policy. The Directors and Officers Insurance Policy Coverage varies amongst various D&O Insurance Providers. For example, D&O Liability Insurance Policies with International coverages will usually be more expensive than D&O Insurance Policy with only Domestic coverage.
4. Financial Strength of Company: Companies declaring bankruptcy have been a big source of D&O claims in the last few years. Thus, companies with high debt levels which have a higher probability of declaring insolvency are charged higher premium rates as compared to companies which have lower debt levels and are thus more financially stable.
5. Industry: The industry in which the firm operates is a big factor in determining the premiums charged by D&O Insurance Company. Companies which operate in industries such as banking, investment banking of any other form of financial institutions are riskier and hence are charged higher insurance premiums as compared to less risky industries.
6. Private v/s Public Companies: Directors and Officers of a Public Company are subject to much greater scrutiny as compared to a private company. The Directors and Officers of a Public Company have a Fiduciary Duty towards the Shareholders of the company and shareholder claims alleging breach of fiduciary duty are a big source of D&O Insurance Claims. Thus, the cost of a Directors and Officers Liability Insurance Policy will be much greater than the D&O Insurance Cost for a Private Company.
7. Deductibles: Deductible in a Directors and Officers Liability Insurance Policy also known as Retention amount is the amount that must be paid by the Insured before the D&O Insurance Policy is triggered. Directors and Officers Liability Policies with a lower deductible will be expensive as compared to D&O Policies with a higher deductible given other D&O Policy Coverages remaining the same.
8. Employee Size: Employee-related claims such as those relating to wrongful termination, discrimination, sexual harassment is one of the leading causes of D&O Insurance Policy Claims. Consequently, D&O Insurance Providers will usually charge higher premiums for companies with a greater employee pool size.
9. Prior Claims History: One big factor impacting the cost of D&O Insurance Policy is the prior claims experience of the D&O Insurance Policy Provider with the Insured Party.  Usually, if the Insured does not have D&O Claims in the last 5 years and there is no pending litigation or regulatory action against the company, the Insured can expect lower D&O Insurance Premiums in such a case.

What should I look at before purchasing a Directors & Officers Insurance Policy?

The Cost of a D&O Insurance Policy, though important, should not be the most important factor before purchasing D&O Insurance Policy.  The Insured should compare the D&O Policy coverages with respect to Limits of Liability, Deductibles and terms and conditions before finalising a D&O Insurance Provider.

The Insured should also have a detailed look at the exclusions in a Directors and Officers Liability Insurance Policy before finalising the D&O Policy.

Take Assistance of an Experienced D&O Insurance Broker for your D&O Insurance Policy

A Directors and Officers Liability Insurance Policy is a complicated insurance policy and it is prudent to avail the services of an experienced insurance broker before purchasing a D&O Policy.

The Insured should consider the track record of the D&O Insurance Broker and speak to current and past clients as well to get a better idea.

A Good Insurance Broker will negotiate the right D&O Insurance Coverages and assist you with competitive D&O Insurance Quotes and help with claims Settlement as well.

Qian is an experienced insurance broker for Directors and Officers Liability Insurance Policy in India and has served clients across diverse industries for their D&O Insurance requirements.

If you wish to purchase a Directors and Officers Liability Insurance Policy in India, you can email us at insurance@qian.co.in or call us on 022-22044989. We would be glad to assist you.

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12. What is Side A Cover under a Directors and Officers Liability Insurance Policy?
13. What is Side B Cover under a Directors and Officers Liability Insurance Policy?
14. What is Side C Cover under a Directors and Officers Liability Insurance Policy?
15. What are the exclusions under a Directors and Officers Liability Insurance Policy?
16. What is the average cost of a Directors and Officers Liability Insurance Policy?
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