The Hindu : Liability insurance can help D&Os

Online edition of India's National Newspaper
Sunday, Feb 09, 2003

Business

Business

Liability insurance can help D&Os

By Our Corporate Reporter

CHENNAI FEB. 8. The Naresh Chandra Committee report on corporate governance, with its far-reaching recommendations on the role of directors and officers (D&Os), has created the need for liability insurance in the Indian corporate sector. According to Uttara Vaid, vice president (contingency lines), Tata AIG General Insurance Company, the D&O liability insurance policy provided cover to the personal liability of directors and officers who were exposed to several risks due to the imposition of stringent corporate governance measures.

Speaking on the sidelines of a seminar on "D&O Liability Insurance" here on Friday, she told The Hindu that it would be prudent for companies to purchase a reasonable amount of D&O insurance which would cover directors even after they had ceased to be directors, if offences related to the period when they were directors. These policies mitigated the corporate and individual risk of being an independent director. With more than 9,000 companies listed on the bourses and lakhs of registered companies, India had a great potential for such insurance, she said.

Last year Tata-AIG sold 52 D&O liability policies. The premium and the extent of cover would be case-specific, she said.

According to Shane Doyle, regional financial lines manager for the Middle East, Mediterranean and South Asia (MEMSA) region of AIG, last year saw some of the top Fortune 500 companies collapsing and in the U.S. alone many bankruptcies had been reported. In all the events, the lesson was that in a bankruptcy situation — when proper D&O coverage was a paramount concern of directors and officers — the existence of entity coverage, in certain jurisdictions, could impede the D&O policy's ability to protect the personal assets of directors and officers. The number of claims had grown phenomenally in the U.S. After the collapse of many Fortune 500 companies the increase in loss costs to the D&O industry from 1996 to 2001 was 640 per cent to $5.6 billion from $759 million, he said.

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