An Underwriter’s Perspective: Three key factors that influence your Directors and Officers (D&O) insurance

When it comes time for renewal, D&O insurance is often the focus of many Executives as it provides financial protection for corporate officers and protects against your personal assets being exposed.

A question we, as insurance brokers, often get asked is what exactly underwriters (employees of insurance companies) review and how this affects your policy.

Having been both an underwriter and now a broker, I wish to share with you three key aspects that influence insurers decision making when covering your D&O policy:

1.????Review of your business.

2.????Your directors and officers track record and history.

3.????Your business' financial position.

This is, of course, very high level so let’s break it down a bit more.

When reviewing your business, insurers will be asking the following questions: ?

What does your business do?

This question may seem straight forward, however insurers have guidelines determining whether an underwriter can provide terms for your policy or not. It is then important to note that depending on what product or service your business provides an insurer may not be able to assist you.

For example, due to the environmental responsibility commitments, if your company has assets involved in coal mining some insurers cannot provide terms for your renewal.

Where is your business based and where do you have operations?

Where your business and operations are located affects whether Australian insurers can provide coverage for your policy.

?If you are based in locations that many Australian insurers cannot provide coverage i.e. the United States, this may require us to approach insurers with global offices

Is this business involved in an emerging area?

If your business is involved in a new technology or area, like cryptocurrency, we can assist in reaching out to global insurers to provide you with the right coverage, as many insurers can be slow to adapt their terms to fit your business’ services and provide the coverage you require.

How is your sector/industry performing?

What sector your business operates in plays a big part in determining the capacity and coverage of an insurer.

For example, during the height of the pandemic, a pharmaceutical company developing vaccines was more attractive to insurers than airline businesses. ?

Insurers are covering your directors; therefore, the track record and history of your board members are an important part of their review.

During their assessment, insurers will look at you and your fellow board members in terms of:

·???????Formal qualifications

·???????Industry experience

·??????Previous companies you have been a part of and,

·??????Media coverage.

In essence, insurers will want to ensure that any qualifications and experience held by you and your directors and officers are a benefit to your business, and conversely that there is no negative press or previous issues in your combined histories that will affect your business.

Finally, insurers will look at the financial position of your business.

They will be reviewing:

• Your current liquidity position – does your company have enough capital to survive the next 12 months and the alternatives i.e loans or capital raise if this is not the case.
• ?Any debt/loans your business holds – insurers will be looking at short and long-term debts your business holds as well as interest rates, due dates and repayment/refinancing plans.
• Your capital market outlook – if there is a liquidity concerns how easy will it be to raise money via a capital raise if the ASX is down and investors are nervous?

The last point has become more of a concern for insurers in the last year given the turbulent economic times we currently find ourselves in.

In my experience, the above three parts are the main factors that influence insurers when the time comes to renew your D&O policy.

If your policy is coming up for renewal, or, if you have any queries about your current policy, don’t hesitate to contact me as I am more than happy to assist you and your business.

Jaron de Klerk – Associate

Mavco Australia - Home - MAVCO

+61 405 646 359

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