Maximize the Value of Directors & Officers Insurance

In the business world, top executives are increasingly turning to liability coverage to protect their personal interests. According to Statistai, the directors and officers (D&O) liability insurance market was valued at $11.4 billion in 2023, and growth is expected to soar to new heights by the end of the decade.

Professionals looking for D&O coverage should ensure they have a thorough understanding of it to optimize their coverage so they can feel confident they’re protecting what matters.

The ins and outs of D&O insurance

Operating a corporation can have multiple and varied challenges, and it’s important that companies and their leaders take measures to protect themselves from potential losses. D&O insurance offers them the peace of mind they need so they can focus on their work. 

“In essence, D&O insurance protects the personal assets of the company’s directors and officers, as well as the assets of the company itself, from any claims and lawsuits that might come in,” explains Glenn Miller, Senior Vice President  at E-Risk Services, LLC, a division of Nationwide Insurance. 

D&O insurance is an important investment in risk management for companies large and small, as well as nonprofits. With this specialized liability protection in place, companies have enhanced financial stability, which allows them to focus their time and energy on reaching their strategic objectives as an organization. It can also serve as a recruitment tool.

“When individuals are approached to sit on the board of a company, they want to make sure the organization has D&O insurance,” adds Miller. “It’s a way to attract and retain qualified executive board members.” 

What’s covered? 

D&O insurance provides liability protection to organizations, and it also helps protects the personal assets of its directors and officers from claims related to their actions while performing in their board roles.

Claims against D&O policies typically include wrongful acts that occur as a result of a breach of fiduciary duty, such as misuse of company or government funds. These may include legal fees, settlements, outstanding loans and other expenses.

D&O coverage may also protect against other unfair business practices, such as divulging trade secrets and intellectual property disputes, which have been the subject of claim trends in recent years.

The potential downsides of changing D&O carriers

“There are a lot of different reasons an organization may need to switch D&O carriers,” says Miller. 

Some events may trigger the need to change D&O carriers, such as if a private company goes public and their original carrier will no longer cover the risk. Coverage needs, exclusions and renewal terms may also change as time goes by. Carriers can also adjust their target risk profiles due to external pressures or be impacted by downgraded financial stability ratings. 

However, switching D&O carriers is not without its risks. For one, D&O policy wording is not standardized across the industry and even seemingly small differences in wording can significantly affect the scope of coverage.  Also, different carriers may use varying wording in their insuring clauses, definitions and exclusions and even set new retroactive coverage dates. All of this has the potential to narrow coverage for an insured who moves from one insurer’s policy form to a new carrier.

“Because of this, there could be some big gaps in coverage when you switch to a different D&O carrier,” explains Miller. 

For organizations that focus on the best cost for their D&O policies, it can be challenging to fully understand the scope of coverage as it relates to premium because the policy coverages among D&O insurers may be written very differently.  A slightly lower premium can translate to a substantial decrease in the scope of coverage when moving from one carrier’s policy to another’s.

Mitigating risk to ensure success: Look to the experts

While the risks of changing D&O carriers have the potential to be significant, there are ways to mitigate them to ensure you have the coverage you need to protect your organization and your directors and officers.

Miller recommends working with seasoned experts with real-world experience helping organizations navigate their D&O insurance needs.

“Our wholesale broker’s job is to have an understanding of the policies and know where the coverage gaps may be,” he says. 

They will compare the forms from the old carrier and the new one and examine the policy language. If there is a disparity in coverage, they will incorporate endorsements to supplement the new carrier’s policy language to reach the desired level of protection. They will also pay close attention to the timing of coverage to ensure there are not any periods where the insured is without protection.

“I cannot overstate the importance of working with a wholesale broker, a trusted D&O insurance professional,” says Miller. “It’s the best way for organizations to ensure they are truly protecting themselves and their board members.”