Insurance 101

What is directors and officers insurance?

First class travel, power meetings, hob-nobbing with clients – there are perks to being a director. But it can also be a tough gig. Employees, customers, shareholders, regulators – they all rely on you. They put their trust in you to act responsibly.

Of course you do the utmost to carry out your role with care and attention. But, if something does go wrong on your watch, being a director means you could face a claim for personal liability.

This is where Directors and Officers Insurance – sometimes called management liability or D&O for short – can help. It covers your personal liability for any mistakes or omissions while a company director, including any defence costs and awards made against you.

Who is directors and officers insurance for

If your directors have legal or regulatory responsibilities to employees, the public, regulators, investors or other directors, then you should consider D&O. It is particularly important for directors of publicly listed companies and those seeking investment. Investors often ask for this insurance so getting it sorted early shows you take your responsibilities seriously.

What are the risks

Claims can cover numerous issues, whether breaching health and safety laws, misadministration of the company pension or errors in financial reporting – particularly where the individual has acted outside the authority of the company.

Even if you've done nothing wrong, the impact of a claim like this can be catastrophic. You'll be personally liable for any fines, compensation and defence costs, not to mention any criminal investigations. So it makes sense to cover your back with directors and officers insurance.

Things you can do

A personal liability claim isn't something anybody wants to face. Which means avoiding a claim in the first place is your best defence.

As a director, take time to understand all the laws and regulations that affect you and your business, making sure you're on top of everything. And if you don't personally have the time or expertise to do this, then consult specialist advice – it will be worth it in the long-run.

Things to watch out for

It's important to remember that Directors and Officers Insurance only covers individual directors and officers, not the business itself. You may also need Public Liability Insurance and Professional Indemnity Insurance to protect the company as a whole.

Also bear in mind that the legal term 'officer' is broad, with the potential to cover numerous individuals in management or supervisory positions. So have a think about who else may be at risk of a potential claim and have them covered too.

Read the "Ultimate Guide to Fintech & Startup Insurance"