Higgs pushes D&O into the public arena

Directors' and officers' (D&O) cover will become a recruitment tool for high level directors following the release of the Higgs Review on corporate governance, experts said.

But the higher D&O rates will be an increased burden on struggling small businesses.

On Monday, Derek Higgs published his report into the role and effectiveness of non-executive directors, commissioned by Secretary of State Patricia Hewitt.

Higgs recommended companies provided D&O to all non-executive directors.

He called for changes to the Combined Code that would require boards to provide greater transparency and accountability, formal performance appraisals and closer relationships between non-executive directors and shareholders.

Reynolds Porter Chamberlain partner Ed Smerdon, an expert on D&O, said Higgs' recommendations would result in more lawsuits and insurance purchases.

"It looks like D&O will become a standard part of the pay and conditions of every non-executive of a large listed company," he said.

"It could even become a competitive tool for companies bidding to recruit and retain the best candidates.

"The increased status, pay and role in safeguarding shareholder value that Higgs is proposing for non-executives means their role in failing to prevent corporate collapses will be more closely scrutinised by potential claimants and regulators."

Zurich speciality lines manager Jim Gaskin said the changes would result in higher D&O premiums to reflect the broader cover required.

"It'll change D&O from being a luxury line for smaller businesses to one of necessity, placing a further financial burden on an already economically-stretched sector," he said.