The importance of having good D&O coverage has grown significantly
27. December 2020
Until recently, the response to our recommendations to cover the risks associated with the managerial liability of board members by D&O insurance has often met with a quizzical look. Is it really needed? Our company has quality management, and our managers and executives make well-informed decisions ... There is no reason for having any doubts though, on the other hand, data from insurance companies are clear enough. The total number and value of D&O claims have been rising for several years and this development was noticeable even long before Covid-19 pandemic with all its economic impacts.
To act with “duty of care” during the time of Covid-19 is a big challenge. Doing it now, of course, is expected more than ever before from all managers, executives, board members. They have to cope with a whole new set of previously unknown situations. They must respond to the current security risks for the company and its employees and at the same time do their best to safeguard the continued operation of the company and maintain all business relations and agreed targets. To make right decisions, however, it is necessary to have high quality, credible information which, needless to say, tend to be rather scarce at this time of continuously changing restrictions and only hardly predictable impacts.
Show your clients how they can protect their business and personal assets against the consequences of unintentional managerial errors
If they have concluded D&O insurance, that provides cover of management liabilities, it can significantly relieve the pressure felt as managers or board members of the company who are responsible for any damage and risk with all their personal assets. D&O insurance protection of course applies only to unintentional errors but in this case insurance covers not only financial damages that can be caused by bad managerial decisions but also for example the costs of legal representation. The paradox of this risk is the fact that there is usually a large time lag between the alleged error of the manager and the claim that is often raised against the insured by the company itself or its shareholders.
We know cases where such a time lag can be even several years. For this reason, it is very important that managers are personally involved in the concept of creating the structure of D&O insurance coverage and that the insurance broker clearly explains to the client all the nuances that must be taken into account before arranging the insurance itself.
The concept of this type of insurance is to raise interest of the company itself since, in more precise terms, it is the D&O insurance which is often seen as a source of additional company cash flow - for example, if a claim is made against a former board member, who allegedly performed his duties dubiously, leading the company to suffer financial losses. The amount of damage can greatly exceed the personal assets of the insured person who is liable for damages caused to third parties in connection with the performance of their duties.
The Covid-19 pandemic has in some areas led to an abnormally increased risk for insurers and it is really noticeable in the prices of D&O insurance or the application of Covid-19 insurance exclusions. Some insurers even “temporarily" stopped offering D&O insurance completely. After a couple of years when the price and other conditions tended to be positively influenced by a lot of competition in the insurance market, the trend reversed and it is now important for clients to consider what exact parameters the insurance broker can negotiate. It concerns especially more complex risks which currently applies to the tourism industry, airlines, hotels and others. Thanks to its significant position in the market and the quality of services provided, RENOMIA is a respected partner for insurance both at home and abroad and is able to provide its clients with the best available conditions.
Do you need help setting up or renewing a D&O insurance program for board members and executives? Our RENOMIA specialists are at your disposal.
Product Manager RENOMIA