Directors and Officers (D&O) insurance could end up being one of your company's most precious assets. Like any insurance policy, it protects you from unexpected problems. More specifically, D&O lowers your financial vulnerability when it comes to lawsuits.
Here are 4 critical reasons why your business should purchase Directors and Officers insurance:
Protection from dissatisfied investors
Some venture capital firms will only invest in your company if you carry D&O insurance. Why? Because investors won't always agree with your decisions (for example: your strike price at IPO time) and could decide to sue.
As your company evolves, its potential financial liabilities can increase. And even with mergers and acquisitions experience, you’re still vulnerable to litigation.
According to The National Law Review, "Potential sources of liability continue to evolve. More securities lawsuits were filed in the past year than in any year since 2008, reflecting increased liability risks surrounding mergers and acquisitions, and IPOs."
If your company went bankrupt (and we truly hope it never does), your investors might lose their seed money, get mad, and sue. This is where D&O insurance comes in for many kinds of businesses.
"A D&O policy can be written to cover directors and officers of for-profit businesses, privately held firms, not-for-profit organizations and educational institutions," states the Insurance Information Institute.
Coverage of legal costs
Directors and officers carry a great deal of power and responsibility, and make critical decisions that affect operations, finance, personnel, and more. People affected by these decisions may sometimes feel they are unfair and will challenge it by way of a lawsuit.
D&O insurance can cover legal defense costs if your directors and officers are accused of creating wrongful hiring and termination practices. Even if the lawsuit is unfounded and there’s no settlement awarded, legal fees aren't cheap!
Attract better talent
Attracting the best directors and officers to your company may be a lot tougher without D&O coverage in place. After all, a role that puts someone at personal financial risk is not as appealing as one that doesn't.
Brambles CIO Jean Holley prepared for her board interview by drafting "a list of questions, many of which focused on the roles and responsibilities of the board position, especially fiscal responsibility and liability."
You can't insure against worry, but D&O insurance can reduce risk and give your directors and officers the peace of mind to go about their work.
It can also strengthen your financial planning by eliminating the fear and paranoia that you'll need a stockpile of funds to combat potential litigation.