Broker says firms should take greater ownership of risk before choosing D&O cover

Jardine Lloyd Thompson has warned companies intending to insure themselves against directors' and officers' (D&O) claims that they must better understand the risks involved before deciding on alternative forms of cover.

JLT director John Lloyd said: "We will likely see more retained risk on corporate balance sheets and greater use of alternative risk financing tools to manage exposure and, furthermore, to satisfy corporate governance issues."

He added that the establishment of mutuals will be common in industries which are unable to buy cover at an acceptable cost.

But Lloyd warned companies that before they decide to insure themselves against D&O claims they must be fully aware of the risks they face.

"If companies are to take greater ownership of their risks then, to satisfy the requirements of corporate governance, they will need to understand what the real risks are and the likely consequences," Lloyd said.

Corporate manslaughter has been highlighted as one risk for which many companies may not be fully prepared.

Davies Arnold Cooper partner Kenneth McKenzie said: "After a string of disasters involving major loss of life, such as the Herald of Free Enterprise ferry disaster, the King's Cross tube fire and the Clapham rail crash, there has still been only one successful prosecution for corporate manslaughter.

"But the Law Commission has said that it sees no reason why companies should continue to be exempt, in effect, from the law of manslaughter.

"The commission has said that companies should be liable for prosecution for a homicide offence if they cause death through conduct which is sufficiently blameworthy."

Airmic is currently consulting its members with a view to adopting alternatives to traditional D&O cover.