What is D&O Insurance?

One of the most discussed and least understood insurance products is Directors & Officers Liability (D&O) insurance. Market watchers note that even some lawyers have their problems comprehending what kind of coverage the insured managers have. Headlines are full of stories about "mega claims" of several billions of dollars along with more and less informed commentaries discussing the principles of this kind of insurance cover.

But what is D&O insurance and why is it important? As insurers, we feel it is essential to bring as much clarity as possible to the subject of D&O insurance in order to contribute to a well-founded public discussion. This risk briefing provides a look at the core issues surrounding D&O insurance and current market developments to give non-experts an overview of this increasingly important part of corporate risk management.

D&O cover has become a regular part of large multinational companies’ risk management, but it is essential for all kinds of other organizations as well. Although major publicly listed companies have the highest risk of attracting D&O claims, any entity, whether publicly traded or not, as well as any non-profit organization,  has potential D&O exposure.

There is an increasing demand from Small and Medium-sized Enterprises (“SMEs”) for D&O cover, though penetration in this sector is still rather low. For example, in the UK, while 46% of medium sized enterprises purchase D&O cover, only 27% of SMEs purchase such cover. In Germany, Allianz estimates that penetration of SMEs is also at somewhere under 50%. Insurers generally offer SMEs more standardized products, while larger multinational corporations require tailored solutions with bespoke policy wording to cover specific needs.