1st August 2003
Over four in ten (45%) small business have no Directors and Officers (D&O) cover in place, according to research from Zurich’s UK Commercial business. This, despite the fact that D&O cover protects both company directors and the business itself from liability claims that could cause either to be financially ruined.
Head of Business Operations for Zurich’s Commercial Business, David Smith explained, "Small businesses are frequently not aware of the personal financial risks that they face. SMEs are no less vulnerable than larger companies, with less time and resource to understand and manage the risks they face. The financial consequences for smaller firms and the individuals concerned is also likely to be proportionally greater."
Under statute law – in both the UK and Europe - there are now an ever-growing number of duties and responsibilities imposed on directors and officers – a breach of which could lead to them being prosecuted personally.
Zurich is urging brokers to work with insurers to point out the risks of not having D&O in place. One broker is embarking on just such a campaign to educate their customers about D&O cover.
Alistair Bell, Business Development Manager for BiB Insurance Group said, "Many of the business people with whom we discuss Directors and Officers Insurance, aren’t aware of the dangers they are open to personally. When we explain how, as a director or an officer of a company, they themselves can be held personally liable for the actions they take in their day to day business, even within a limited company, the insurance cover sells itself."
"The litigious times in which we live, have promoted D&O cover over the last 3 years, from being an optional extra, to an almost essential part of the business combined offering from BiB."
Zurich believes that the first step in improving understanding of D&O cover is to explain to customers just who in their business could be termed a director or an officer. The next step is to make them aware of the types of claims they could be exposed to and where the can come from.
There is no comprehensive definition of ‘director’, although the Companies Act 1985 states that the term includes ‘any person occupying the position of a director, by whatever name called.’ Therefore, directors are identified by their duties and not their titles and the law does not distinguish between an executive and non-executive director – both face personal liability for their own wrongful acts. Officers also have personal liability for their actions under various statutes but the term is less well defined than ‘director’ is. The Companies Act 1985 states that an officer ‘includes a director, manager or secretary’. It has also been said to mean a ‘person who is managing the affairs of a company as a whole.’
Claims can come from any of the following:
David Smith concluded, "Brokers like BiB Group are right to warn company directors about the risks they face. Too few company directors understand the implications of changes in legislation and societal trends, and their personal liability. The insurance market has so far failed to get this message across. To combat this we have developed a new product based around Directors and Officers cover called Executive Assurance. Our Executive Assurance product is designed for small and medium sized businesses and caters for a variety of financial risks, and yet is flexible and accessible as brokers can go on-line to get quotes or arrange cover. Executive Assurance is the product the broker market has been crying out for and the customer desperately needs."
-Ends-
For further information:
Vanya Rogers,
Zurich UK Commercial
Tel: 0121 697 4424
Susannah Jeffery,
Zurich Financial Services
Tel: 01489 561559
