There are several risks faced by directors and officers in India. The directors and officers play a crucial role in the progress of a company. However, their stake comprises several risks which need to be indemnified for their smooth functioning. In the absence of a director's insurance, they may not make critical decisions for their company. Hence, they must have an alternative to reduce the risk.
Let us discuss six risks faced by directors and officers in an organisation.
The insurance companies settled various claims of cyber insurance policies post Covid-19 pandemic. With the Covid-19 pandemic, the Indian government imposed a lockdown. As a result, the entire work of IT firms and other electronic firms shifted online.
Due to a lack of cyber security which is rarely possible at home compared to offices, various data and confidential info were stolen by cyber hackers. The threat of ransomware attacks registered an unusual increment.
As a result, cyber insurance companies were compelled to increase the premium of their respective policies. Further, the companies reduced the policy coverage. Nevertheless, the companies continue paying high prices in order to prevent the more extensive loss.
Data loss is another risk faced by directors and officers. The top management of an organisation has reported multiple reports of data loss or data stolen. Data is crucial for an organisation. It consists of its plans and confidential info along with the strategy that an organisation is planning. In short, the data is the backbone of a company that must be preserved. If it is lost, the company may lose its goodwill along with other assets. Hence, the directors and officers may face severe repercussions in case of data loss. Therefore, it is essential to buy D&O insurance policy in order to indemnify the company data.
A company may face severe losses during a financial year. The profit and loss depends on the efficiency of workers and the supervision of directors and officers. However, in case of a loss, only the top management of a company is held responsible.
It directly affects the interest of the shareholders of an organisation. The losses may divert them from investing in the same firm. Hence, the top management of an organisation needs to protect the interests of shareholders. Loss is the most common risk faced by directors and officers.
Merger and acquisition litigation has become one of the most common risks faced by directors and officers worldwide. The attorneys of the plaintiff or investors of the company generally raise objections to the merger or acquisition moves taken by the top management of an organisation.
Moreover, it involves several lawsuits which need to be settled in order to continue with the M&A process of an organisation. Hence, in order to dismiss the claim of shareholders, the company needs a liability insurance policy.
The directors and officers liability is likely to increase in case of company insolvency and bankruptcy. Several companies are under pressure due to climate change and technology disruption giving rise to insolvency claims. It is an uncertain risk faced by directors and officers. Therefore, in order to discharge the liability, the top management must purchase director's insurance.
It is another risk faced by directors and officers. The personal accountability of the top management of an organisation is increased. The administration may face repercussions related to unethical and cultural behavior towards the employees. Repercussions may lead to civil litigation. Therefore, the management must be indemnified with a liability insurance policy.
Conclusion
The directors and officers are facing several risks associated with their functions. These risks may halt the growth of an organisation. In addition, it may affect the decision-making of an organisation. Hence, the top management must be indemnified by availing of D&O insurance.
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