The risks that business owners face are numerous, which make different insurance plans necessary. In order to ensure that your business is protected against these risks, you should get an insurance plan that focuses on different areas within your enterprise. An example of such an insurance plan is the directors and officers insurance plan for businesses. If you have never heard of it before or are wondering if you should get one, take a closer look at what it entails here.
What Is It?
The insurance policy focuses on protecting officers, directors and other high-ranking business officials from legal action by other individuals (Vendors, investors, competitors, employees and customers).
A large number of lawsuits occur because of the situations highlighted above. The process of investigation for the claims and preparation of the defense requires a lot of time and money. Even for a settlement, the amount that has to be paid can be extremely high. In many cases, it can leave a business bankrupt. With a insurance plan, businesses can shoulder the financial losses they may face in this situation.
Do You Need It?
In 2017 alone, a total of 415 lawsuits were filed against businesses. Out of these, a large number of lawsuits were against senior executives, CFOs and CEOs of businesses. The following factors are making it increasingly necessary for one to have Insurance:
- • More focus on personal accountability: Employees, customers and others are not only aware of their rights but are choosing to exercise them frequently.
- • Growth of a business opens up more room for liability: As businesses grow, there are more areas that need to be addressed properly. Data protection and healthier employment practices are two major areas of liability for a business.
- • Active investors: More investors are holding businesses accountable for their actions and actively influencing corporate behavior. Not only are they looking to improve practices, but they are also looking to hold people accountable for the business’ shortcomings.
It should also be noted that the current marketplace climate is one where class action lawsuits against different businesses are on the rise. Without a D&O insurance plan, a business could face difficulties in growth. In fact, many well-established businesses have also been unable to recover from the financial losses caused by D&O lawsuits.
How To Get an Insurance Plan
Like any insurance plan, the coverage it provides can differ from industry to industry. It will also vary based on the difference in risk in each market. In fact, for many businesses, insurance plans come under their risk management plans. Areas that are not covered by this plan are:
• Criminal acts
• Fraudulent acts
• Embezzlement of funds
• Acts of intentional noncompliance
• Acts that result in personal profit
• Illegal remuneration
Getting a policy can also differ in terms of coverage. Many D&O insurance plans are based on the following areas:
• Coverage for individuals: Directors, managers, officers and more.
• Coverage for the business: For any amount paid in relation to the investigation, defense or settlement of the claims made against an officer or a director.
• Coverage for the entity: For protection of the business when it is being sued with other officers or directors.
A complete policy will be a mix of all three or have only one clause in it. This can be decided based on the wants and needs of the business. With increasing risk and a market environment where accountability is taking a larger role in business functions, this policy can save a business from suffering irreparable damage.