Directors' and officers' cover (D&O) represents one of the biggest growth opportunities for insurers and brokers. Larger UK companies started buying this cover more than ten years ago, but the real opportunity now lies with small to medium-sized companies. However, in order to make a significant breakthrough, there must be closer co-operation between insurers and brokers.
There are a number of factors behind the growing need for D&O insurance protection. First, a number of high-profile cases such as Maxwell and BCCI have highlighted the fact that senior executives can be held personally responsible for corporate malgovernance. Furthermore, the Turnball report, which is closely linked to this issue, places a greater obligation on directors to review their internal controls, risk management programmes and their implementation of these.
In addition to this, society is becoming much more litigious. For example, there has been a great deal of new employment legislation, such as the Company Law Directives, which has significantly increased the chances of directors and officers being exposed to legal action. The number of cases being heard by tribunals last year rose by over 21% compared with 1998, breaking through the 100,000 mark for the first time.
However, Zurich research shows that the insurance industry has a great deal of work to do to significantly raise the profile of D&O cover among employers. For example, only 16% (at November 1999) of companies with turnovers below £10m purchase D&O. One of the main reasons for this is that 39% of all companies have not heard of it. However, once customers are aware of the need for the cover, 51% saw it as very important or essential.
Clearly then, the first obstacle insurers and brokers need to tackle is educating companies on the growing importance of D&O. Directors have to balance an increasing number of seemingly conflicting responsibilities, as new legislation is introduced. They need to understand that they do not need to have “made a mistake” for it to cost them dearly – they will have to defend themselves against allegations that can be costly, given that, in some instances, company law prevent companies from paying their legal costs. They need to know what legal duties they have to staff, customers and other third parties and realise that these are liable to change with new legislation.
A key factor in achieving this is for insurers to ensure that brokers are up to speed with the necessary issues and product details – training and literature that are easy to use and understand are essential.
Insurers should also look to their websites – the internet is a powerful tool for reporting on the latest news and a very cost-effective way to communicate with both brokers and customers. Also, it allows users to receive information when they want it, so they are less likely to feel pressurised than if they received a mail shot, for example.
The next step is to make it as easy as possible for officers to take out D&O cover. Unfortunately, there is still too much red tape associated with the selling and administration of these policies, which can dissuade potential customers. For example, rather than rely on brokers and their customers, insurers should do more to obtain much of the data needed to provide this cover.
Finally, in taking a more proactive approach to promoting D&O, insurers and brokers can truly demonstrate the added value they provide. It is imperative that insurers and brokers are no longer seen as mere providers of products but more as business advisers. D&O enables us to achieve this and should be viewed as a much-valued partner with a key role to play in the success of a customer's business.