Do Small or Medium Business Need to buy D&O policy?

Small-scale businesses are rising in India, and several insurance plans are evolving in order to provide coverage and meet the requirement. Among all other insurances, the D&O policy is considered as the best coverage policy as it indemnifies the directors and executive officers of the company from incurring losses. It also protects the goodwill of a company in the market. Therefore, small and medium businesses need to buy D&O policies as they are crucial for the operations of large-scale industries or entities.

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Let us understand the factors and risks compelling the directors and executives officers to buy D&O policy.

Soft Targets

The SMEs are a soft target of their competitors, who may file cases or institute lawsuits against their directors or business. It is because they lack legal resources and are required to outsource legal assistance in order to deal with legal cases. In other words, several SMEs do not possess in-house legal teams like large enterprises. Therefore, even in minor disputes, they are required to outsource legal assistance. Hence, it is crucial for SMEs to buy D&O policies.

Cyber Breach

The D&O policy offers coverage for cyber-attacks. Nowadays, businesses are more prone to cyber-attacks. Due to the advancement of technologies around the world, hackers are taking advantage by hacking and cracking into personal and professional devices. Due to the infringement of the data, the directors and executive officers may suffer huge losses. Hence, they need to buy a D&O policy in order to immunize themselves from losses. 

Attract Investors

Nowadays, investors only make investment in businesses which possess a D&O policy. Nevertheless, they finance their capital after investigating long-term visions and execution plans of an organization. However, if the business owns the D&O policy, they get a guarantee of the protection of their investments. Therefore, investors generally enquire if the organization has purchased the D&O policy. Hence, it is essential for a business to buy a D&O policy.

Insolvency and Bankruptcy protection 

The filing of bankruptcy provides specific relief to a company. It protects them from facing litigation and lawsuits. However, the directors and executives are still prone to risk. Several parties associated with the company may institute lawsuits against them for mismanagement and hold their leadership liable for the repercussions. The shareholders may also demand them to repay the debts and accomplish other obligations they are obliged to perform. Hence, the directors and executives could be in a tough spot, and the company will not be able to indemnify them due to its bankruptcy. Therefore, they need to buy a D&O policy. The D&O policy will protect them and indemnify them against all losses and expenses.

Recruitment of Better Talent

An organization, especially an SME, needs top leadership and good governance within the business. However, the talent will only join the company if the industry guarantees them to indemnify against all losses and they are not compelled to put their personal asset at risk. Hence, if a business needs talented officers and directors, it must buy a D&O policy.

Conclusion

The director and officer insurance policy protects the top management of a company from incurring any losses. It indemnifies them by meeting all the necessary expenses an insurer is obligated to pay. The insurance company under D&O liability insurance reimburses the costs made or incurred by the companies and defense them by providing an attorney in certain circumstances.

Written By: PolicyBazaar - Updated: 19 January 2023