The Benefits of D&O Insurance for Private Companies

 Asian company director becomes worried after reviewing claim documents from a disgruntled client.

A common misconception among business leaders is that private companies are not as vulnerable to D&O exposure as public companies are. However, this could not be further from the truth. Private companies, their board members, and their executive officers face a host of exposures and are just as susceptible to lawsuits. According to a 2016 industry survey, one in four private companies experienced a D&O liability loss, with 96% of them suffering significant financial losses.

However, with D&O Insurance for private companies, business executives can mitigate these risks.

What Is D&O Insurance?

In today’s litigious society, businesses face a higher risk of liability and lawsuits. Employees, customers, investors, competitors, regulators, and other external parties are examples of third parties who can sue corporate officials.

Costing an average of $400,000, D&O claims can be expensive. D&O Insurance protects a company’s directors and officers from personal loss, covering their assets, legal fees, monetary damages, and settlements resulting from such claims.

Why Private Companies Need D&O Insurance

The legal standards of conduct required for private companies are identical to those of publicly held companies. This means directors and officers of private companies must fulfill their responsibilities with utmost obedience, loyalty, and diligence. Any perceived or actual breach of these duties can lead to potential lawsuits from claimants like customers, employees, or investors.

Directors & Officers Liability Coverage for private companies protects them from these most common exposures:

 Company leaders hold a board meeting to discuss the benefits of having D&O Insurance.

  • Claims by Employees: Most common claims against the company and its directors are allegations of employee harassment, wrongful termination, and discrimination.
  • Claims by Clients and Consumer Groups: Some common claims are false advertising, misleading statements, and contract disputes.
  • Claims by Competitors: Common allegations include infringement of patents and trademarks, unfair competition, and antitrust violations.
  • Claims by Regulatory Agencies: If a business breaks compliance with regulations, regulatory bodies can pursue legal action against the management.
  • Claims by Shareholders or Lenders: Misrepresentation and inaccurate disclosures are common causes of lawsuits. Since private companies are not required to disclose their financial data publicly, stakeholders rely on their statements.

In addition to protecting the management from these common claims, the following vulnerabilities make D&O Insurance for private companies a must for these businesses:

  • Due to their size, many private companies lack access to external resources to defend against costly lawsuits and claims. The financial and personal impact on the company and its management is harder to recover from without D&O Insurance coverage.
  • The directors and officers of private companies are closely involved in all facets of the business, making them individually susceptible to different claims and allegations.
  • A D&O Insurance policy can help private companies considering going public have an easier transition by protecting them from potential liabilities.

These claim examples and vulnerabilities illustrate the crucial role that D&O Insurance plays in protecting private companies and their directors and officers in today’s evolving risk environment. With more awareness growing around private company D&O exposures, these companies seek all-encompassing and cost-effective coverage solutions from D&O Insurance providers. As a broker, you can bridge the gap between this need and the solution by offering competitive D&O Insurance for private companies through the help of ProWriters.

Benefits of D&O Insurance for Private Companies

Aside from the general benefit of protection, D&O Insurance also provides the following advantages for private companies:

Insurance agent presents business clients with a contract for D&O Insurance.

  • Peace of Mind: D&O claims can come from various parties and entities. By investing in D&O coverage, private companies can ensure that they are protected, regardless of the claim’s source.
  • Ability to Attract New Leaders: A robust D&O policy showcases the company’s effort to protect its management. This makes the company management seat more appealing to potential leaders.
  • Reimbursement of Legal Costs: Following allegations of financial mismanagement, wrongful acts, and negligence, D&O Insurance for private companies can provide legal cost coverage for these claims. This blanket of protection can help the company and its management bounce back financially and continue operating even after a costly lawsuit.
  • Protection Against Regulatory Exposures: Private companies face increased regulatory scrutiny, making D&O Insurance even more crucial. The cost to defend the company or its directors against third-party regulatory bodies can be expensive, and this can be covered with a D&O Insurance policy.

Address Your Clients’ Exposures & Vulnerabilities With ProWriters

Being a business executive is challenging, and making the right decisions at all times might be next to impossible. Nonetheless, a lawsuit can damage the careers and personal lives of highly skilled business leaders. As a broker, you can protect them against these risks by educating them about D&O Insurance for private companies.

At ProWriters, we provide brokers like you with the best tools to help you become the expert to whom your clients turn for protection. As reliable D&O Insurance providers, we offer the best coverages that match the unique needs of your clients. Reach out today to learn more about how we can make a difference in your broker services, or download your free D&O Insurance guide.