Directors and officers (D&O) liability is a complicated risk and it can be hard to determine if you’re getting the best value on the right coverage from your D&O insurance policy.
How much does D&O insurance cost and how can predict how much your company is going to have to pay for this coverage?
The key to buying the right policy for the right price is doing proper due diligence, carefully considering cost drivers, and finding the right broker that will be transparent with the underwriting process.
The average annual cost of $1,000,000 worth of coverage typically falls between $5,000 and $10,000 for companies with revenue below $50 million a year. The price per $1M of D&O coverage further decreases as you purchase higher coverage limits.
The average D&O insurance cost a company pays mainly depends on the coverage offered. D&O insurance is not a commodity, meaning there are material differences in the D&O policies you can buy, based on the cost of the D&O policy.
The end goal is to find the best coverage for the best price. That is where a good broker can come in; they will find the best coverage available, highlight the coverage differences between insurance carriers, and negotiate a price on your behalf.
Until recently, many believed that directors & officers insurance was coverage that only large corporations needed, but that has been proven to be untrue. You don’t have to be a giant, publicly-traded entity in order to benefit from the protection that D&O insurance can offer your company.
In this increasingly litigious age we live in, small business executives need to be financially protected from possible claims filed against them as well. No matter how big or small your company is, your corporate leaders are integral to your success. It’s also undeniable that business owners and leaders are often held to a higher standard of conduct, which puts them at the center of attention and opens them to an increased number of risks.
If your company is sued for wrongful termination or slander, for example, a directors & officers policy will make sure that your corporate leaders are not held personally liable for potential losses.
The cost of directors & officers insurance provides coverage and pays for claims in such instances to make sure that the personal assets of your leadership are protected. With D&O insurance, there are three clauses often included in the policy that provide coverage under particular parameters:
Side A: Offers coverage for corporate leaders individually when the business is unable to or refuses to do so.
Side B: Covers the company when the directors and officers are indemnified.
Side C: Protects the company itself from securities claims and is usually needed by larger corporate entities.
A Directors & officers policy commonly provides protection for the following types of claims, among others:
Discrimination: If a director or the company is sued by anyone, most commonly a former employee, for workplace discrimination of any kind (gender, pregnancy, age, religion, etc.).
Wrongful acts: If the director or officer has breached a legal obligation that they had to the company, this can be considered a wrongful act. Immoral and illegal acts are often included in this category and commonly lead to civil cases against the corporate leader.
Misuse of funds: Every move directors and officers make is scrutinized, which is why claims related to alleged mismanagment of company funds are so common.
Employee mistreatment: Employee mistreatment claims can be anything from sexual harrassment to wrongful termination or failure to promote.
