New research by London-headquartered specialist insurance broker McGill and Partners and professional body NEDonBoard has unveiled findings that could be cause for concern.
Conducted last month among 160 board members in the UK, the study found that a mere 17% understand what happens to their directors’ and officers’ insurance (D&O) cover when they leave a role, while fewer than a third actually know how to make a valid claim.
Additionally, according to the poll, less than 30% of directors have an understanding of how a company merger impacts their D&O policy, and only 21% are aware that it might not cover them for all legal representation costs in the event of an insolvency.
“Legal claims that would be covered by a D&O policy can run into the millions,” stressed Francis Kean, partner at McGill and Partners’ financial lines team, “which is why it’s so vital that directors understand their coverage. What is worryingly clear from our research is that many directors don’t understand how their cover will be affected by changes to the company.
“Events completely outside of directors’ control can restrict or curtail the cover available to them. This means that many could be leaving themselves open to serious financial losses, and even bankruptcy, by not understanding the nature and limitations of their cover.”
Kean said one likely reason behind the knowledge gap is the fact that recipients of the cover aren’t necessarily involved in the purchasing of D&O insurance.
He went on to state: “Unless there is a stronger connection between the product and its intended end users, there is the very real risk of serious expectation gaps, or worse, emerging at the worst possible time.”