As the compliance is becoming stringent and the Indian society and business is getting more litigious, the directors and officers insurance policy which compensate key management personnel of a company against legal actions is gaining importance in the Indian market.

Previously, the policy was purchased by businesses due to global exposures like regulations, compliances and exposures related to the foreign listing. But, now companies with domestic disputes or internal disputes are also looking to buy this product to safeguard its key-personnel.

The surge in demand is due to amendments in companies act 2013 last year, under which government can ask the NCLT (National company law board tribunal) to hold directors and key management personnel liable or responsible for any limit of liability (liability not defined or rigid) in the event of fraud.

Increase in action by enforcement authorities:-

There are numerous instances where enforcement authorities had taken actions against the directors. Last year, 40% of directors and officers claims were related to regulatory governance.

Spike in claims due to employment practices:-

Another significant cause of the increase in claims against the directors and officers is related to employment practices. Out of 100 claims, 20 were filed by the employees against the key personnel of the company, last year.

Claims by clients and competitors:-

Usually, competitors in order to satisfy the competition commission they try to sue the key personnel for unethical business conduct or in order to sideline the competitors in the market by the judicial process or regulatory fines.

In D&O policy claims payout usually starts from payment of defense cost. Given the length of the judicial process in various countries, the defense cost usually becomes unending debt for the organisations; therefore the vital party of the D&O policy is to submerge the defense cost for the companies or its key management.

Besides covering defense cost, regulatory fines and penalties, the D&O policy also pays civil fines and penalties. Further, D&O policy can be extended for directors for the past actions even after the board is dismissed.

As a result, higher claim activities in the market have made the organisations to seek D&O policy to secure its key personnel as well as their cost and time. This high tendency of D&O policy requirement is going to increase more in upcoming year.

We at Beacon Insurance Brokers Pvt. Ltd. implore you to take a look at your company’s D&O policy and whether it covers all the risks adequately. In case of queries, feel free to contact us.