D&O Insurance: Takeaways For an Agent

Unlike general organizational liabilities, D&O claims can generate from a single managerial decision. This decision has the potential to create a snowball effect, which can exponentially drain company finances. Ultimately, companies face a loss in this situation. Thankfully, D and O insurance (or, directors and officers insurance) protects against such losses.   

In this blog, we shall cover the basics of directors and officers insurance, its market situation, and takeaways for agents. 

Directors and Officers Insurance- A Brief Introduction

Directors and Officers Insurance (or D&O insurance) is liability insurance intended to protect directors and officers of a company. It provides coverage for claims made against them while serving the organization.  

Likewise, the coverage includes claims that have had harmful consequences as a result of improper managerial decisions. Decisions such as wrongful judgments, misinterpreted reports, failure to comply with laws, or anything else.  

While professional liability insurance is designed for professionals of any field, it only covers certain costs that agents must highlight. For example, costs arising due to negligence or liability, resulting in loss or bodily injury. But interestingly, the D and O insurance will also reimburse expenses and losses which the organization has already paid.   

In short, it’s a business loss insurance for management faults, errors, and inaccuracies that cover any legal or organizational costs. Thus, the D and O Insurance exists to finance the personal liabilities of the decision-makers. Much like personal insurance, but in an organizational context. The main selling point of this policy is that it covers the past, present, and future directors and officers of the entire organization. 

D&O Insurance Market at a Glance

Likewise, with companies growing their multinational reach, D&O exposures are increasing. The jobs of directors and officers are getting complicated, and critical decision making is involved recurrently. Moreover, emerging technologies, tightening regulations, rising class action litigation activities, and regular activism pose an additional set of challenges to the officials.   

Therefore, executive and management liabilities are hiking in areas like data protection and employment. In such a scenario, the severity and frequency of D&O claims is apparent.   

Besides, you can look at these stats to gain some insights 

According to AGCS analysis: 

  • Non-compliance with laws and regulations is the top reason for D&O claims by frequency and value.  
  • It takes between 3-6 years to complete the average securities class action case in the US.  
  • In the US, securities class action filings are rising rapidly – almost double the average no. of the preceding two decades. It is the highest since the dot-com bubble burst and is potentially on course for the top record in 12 years. At this pace, the M&A-related filings could double the annual numbers than witnessed in the last four years.  
  • The legal defense costs average around $10m, rising to $100m for the largest cases in securities class action cases.  

Likewise, another data on Statista shows that the share of D&O insurance reached 97 % in 2019. 

Key Takeaways: The Pain Points to Leverage for D&O Insurance Sales

Pain point 1: Defending company leaders  

Organizations exercise trials and errors to gain a competitive edge. But experimenting with the market might bring unprecedented threats, given the unique challenges prevalent in the market. This exposure to a huge loss is a pain point for any organization. However, agents can help organizations prepare for D&O damages by introducing them to directors and officer’s insurance.   

Moreover, D and O insurance can help:  

  • Companies retain top talent.  
  • Companies attract top talent.   
  • Facilitate both the for-profit and non-profit models.  
  • Provide protection against imminent lawsuits.  

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Pain point 2: Coverages   

Most insurance agents neglect SMEs thinking D and O Insurance is only for big corporations. But companies of all sizes, private and public, have the potential to face D&O claims. Here’s some of the coverage that D&O insurance offers (that other insurance policies do not!):  

  • Improper management- If negligent control of finances leads to financial losses, then the decision-makers may get sued. A typical example of such cases can be when an organization offers its assets for a value significantly lower than market value.  
  • Breach of duty – Failing to fulfill organizational responsibilities could mean decision-makers having to face a D&O claim. Neglecting illegal activities happening inside the organization can lead to such claims.  
  • Judgmental errors – These types of errors occur when leaders provide false information, withhold facts, and accept forged reports.  
  • Wrongful acts – These kinds of claims arise when leaders present wrong figures to achieve their own goals.   

But What’s Excluded?

A standard directors and officers insurance policy typically exclude coverage in followings, which an agent should communicate with clients:  

  1. Code of conduct  
    • Exclusions for criminal or fraudulent activities  
    • Profit-oriented illegal acts  
    • Accounting of profits and other unlawful compensation exclusions.  
  2. Catastrophes  
    • Damages brought about by acts of wars and environmental hazards.  
    • Bodily injury/property damage during catastrophes
  3. Other coverage  
    • It excludes coverage that other policies cover.  
    • Pending and prior litigation.  
    • Prior (late) claim notice.  
    • ERISA, an act stated by US Department of Labor  

Pain point 3 – Carriers

D&O insurance exists to cover claims that general coverage overlooks. But since different industries have different D&O issues, D&O insurance is customizable accordingly. So, agents need to make sure to work with carriers with significant experience in handling D&O insurance.  

Inexperienced carriers will not know what they are dealing with when faced with D&O claims. They will take a lot of time to adapt to the allegations as they come. But the essence of insurance lies in diverting risks as they come, not after. So, agents can help organizations by providing them carriers who have already prepared similar D&O contingencies.   

 

To sum up, the unpredictability of managerial decisions invites unwanted liabilities, and companies will never run out of such D&O risks. As such, D&O insurance has a close association with broader management liability insurance. This association is because it covers corporate and personal liabilities for the directors and officers of an organization.  

Hence, opting in for D&O insurance would be a wise decision for all parties involved. For organizations, directors and officers insurance provides extensive protection in case of inevitable. And for agents, D&O insurance would be a lucrative business opportunity considering the current market scenario and trends.   

If you have any questions or suggestions regarding D&O insurance, leave a comment below!  
 

Learn how you can flourish as an agent after one call!

Schedule a call right now and learn how you can ease your work, sell more, and increase your profits!

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