In an era where people want accountability for a mistake, Directors and Officers Liability Insurance (D&O) is a must for business.
These days the board and executive can be held personally responsible for a company’s problems, so Directors and Officers insurance helps to indemnify against losses or help with defence costs. The Australian Security and Investment Commission offers a good overview of Directors’ liabilities when things go wrong, while CCIWA’s Workplace Relations team can offer legal advice.
Financial counsellor with Financial Utilities Simona Hughes, an affiliate of Carbon Group, says taking out a good insurance policy is the first part of protecting your business. Alongside that you need corporate governance in place so that everyone understands where they are exposed.
“You could have a scenario where non-executive shareholders are having a lot of influence over decisions made by the company, but ultimately it’s the directors, not the shareholders, who will be held responsible and accountable if something goes wrong,” Hughes explains.
“So, insurance is essential, especially for organisations who provide their staff with career progression where they might end up being director of that entity. They need to understand what they’re doing when they sign up to be a director.”
It can be challenging to find the right insurer to give you the right type of D&O insurance. Hughes says your insurance needs can be straightforward or complex, depending on your business. The cost is usually about 1 per cent of your turnover.
Sometimes the insurance providers won’t put the policies in Australia and the brokers sometimes look overseas.
“I’ve had a client in the engineering industry, and we couldn’t get placement in Australia for insurance coverage. We ended up with a UK-based insurer. That’s a tricky situation because there isn’t any competition and it’s an area that not everyone understands and knows how comprehensive the cover is,” Hughes says.
If you’re feeling overwhelmed, you're not alone. Hughes believes insurance is a tricky element for business: “You’ve got to be really on top of it. You’ve got to read the fine print. You’ve got to know what areas of the business you’ve got to insure.”
Here are some tips to help get you started:
- Find an agent: Use google searches, LinkedIn recommendations, and ask people in a similar situation to recommend someone.
- Background check: Contact people you know and ask if they’ve had any experience with a certain company or person. Check the quality of the insurer’s website. Drop in to the place from where they operate. If you get a sense that you can operate a business more efficiently and professionally, you probably shouldn’t use them.
- Interview: You need to make sure the insurer has an understanding of your business and what you’re asking for. Don't be afraid to have some set questions and interview them to make sure they’re a right fit for you.
- What you need: From asking people in similar situations to yourself, business advisors, and the interviews with insurance agents, you will get an idea of exactly what insurance your company needs. Set up a list to help you compare policies and insurers.
