Two new law changes which could lead to prison sentences, will have serious ramifications for directors' and officers' cover.

New data protection legislation, to be introduced on March 1, could see directors ultimately facing jail for failing to provide appropriate protection or holding inaccurate information on individuals.

In addition, the Home Office will consult this spring on implementing a Law Commission recommendation that directors be held liable for collective management failure to prevent accidents.

First City Insurance Brokers divisional director John Sevstopulo said: "There could well be occasions when directors think they are covered, but are not actually covered, they expect their policy to respond and they are looking for someone to blame."

An independent report reveals that two-thirds of company directors are unaware they will be personally liable for the accuracy of their databases in a matter of weeks.

About 88% of consumers questioned in the report, compiled for GB Information Management, said they would pursue their rights.

The report also revealed that nine out ten finance industry businesses are unaware that the Data Protection Act, 1998, becomes active next month.

GB Information Management managing director Iain Johnston said: "There is a deep-seated ignorance about the new act across the UK generally, not just the financial sector."

A change in law will also make it easier to prosecute directors responsible for causing fatal accidents.

The directors and officers insurance sector is bracing itself for a batch of new policy requests.

The Government plans to tighten legislation, following recommendations made by the law reform body, the Law Commission.

It is understood the new legal test facing a director could be the failure to do everything reasonably practicable to prevent accidents. Many could face jail.

With company cover on fatalities proving lucrative for insurers it is likely they will hike their premiums or restrict policy cover, rather than lose business.

Sevstopulo said that instead of increasing prices or restricting policies, insurers should "scrutinise individual directors and working practices of companies".

He said the new legal threat could see the potential for a lot more claims being received in the D and O sector.

Indemnity will generally cover defence costs of directors accused, cover ceasing if a case is proven and an individual found guilty.

CBC UK director Brian Bendle said brokers can capitalise on the fears of directors and officers resulting from the change in law.

"From a selfish sales point of view it makes it easier to sell policy. It is even more important to buy D and O and it should encourage companies."