D&O warning amid cost and cover fears

As business leaders across the UK raise major concerns over the cost of directors’ liability insurance a leading broker has warned the issue is not just about cost but also cover.

It comes after the Director-General of the Institute of Directors wrote to the UK government calling for greater action to provide directors access to affordable liability cover.

Jonathan Geldart wrote to business secretary Kwasi Kwarteng to raise the issue of the surge in the cost of professional indemnity (PI) and D&O cover. Insurance costs were “having a profound effect on some smaller businesses”, the IoD said. “Cost increases put yet more pressure on businesses and entrepreneurs at a time when, for many, cash flow remains fragile.”

However, one specialist broker has warned the impact of the recent business interruption insurance ruling in the supreme court had seen insurers looking to tighten cover restrictions to ensure they do not face a similar situation in future.

Francis Kean, Partner at McGill and Partners explained: “The question of soaring rates for directors’ and officers’ liability insurance has been getting a lot of attention recently. But it is not just a question of increasing cost but also one of value. As the recent controversy concerning business interruption insurance for small businesses which ended up in Supreme Court has shown, the meaning of the words in the insurance contract matter very much.

“A less obvious but equally dangerous temptation for insurers in a hard insurance market is to restrict cover. When you add into the mix the fact that the D&O insurance policies tend to be long and complex and combine that with the reality that there is often a lack of understanding among directors and officers as to what is and is not covered, there is an increased potential for coverage disputes and bad outcomes in the event of a claim. Caveat emptor applies and appropriate professional advice at the time of purchase is more desirable perhaps than ever before.”

“The difficulties companies are experiencing in buying enough D&O insurance are well publicised,” he added. “However, it is possible to navigate the D&O marketplace and secure the right amount of protection by engaging with experts who understand how to positively differentiate a company’s risk profile to insurers. Time is critical, spend twice as long as you did previously on your D&O purchasing, get to know your insurers and treat them as insiders, commence a dialogue with the new market entrants to familiarise them with your risk.”