Corporate counsel will tell you: The more money your firm pulls in, the more people will come out of the woodwork to claim a part of it. Shareholders, former employees, current employees, vendors and suppliers, creditors, even competitors.
General business insurance won't protect against claims that hold directors personally responsible for company actions (like in the Enron or WorldCom cases). Enter directors and officers (D&O) insurance. Attracting top management talent and even decent outside directors requires more than cash and benefits. If they're smart, your prospects will be checking to see how much coverage for them is in the deal.
Here are some tips on keeping your management team focused by transferring the risk using D&O coverage:
Action Steps
The best contacts and resources to help you get it done
Do you need D&O coverage?
As you might expect, it's not as simple as buying coverage and moving on. If you company is not required by state law to defend directors, then coverage — even if you buy it — won't apply.
I recommend: Axis, an insurer focused on the real-estate industry, has good, clear descriptions of what
D&O really does, as well as explanations of similar but cheaper policies which might be a better fit for small business and professionals, like
employment practices liability insurance (hiring and firing disputes) and
errors & omissions (mistakes made giving advice, perhaps as an architect or realtor).
Benchmark your company
Get an idea of the real numbers to figure out where your company fits into the D&O scheme.
I recommend: Tillinghast, part of management recruiting firm Towers Perrin, does
an annual review of the sector (PDF file).
Review D&O plans from the big league insurers
Your local bank or regular agent will be happy to talk business liability insurance, but chances are they don't D&O. In part, that's because it's an expensive product and hard to sell to small business.
I recommend: AIG,
Chubb and
Ace Limited are among the largest providers.
Find coverage through your trade association
Often, the best deals on business liability insurance are through a trade or professional associations. If you don't already belong, it might be a good time to join.
I recommend: Find an association through
Weddle's Association Directory online.
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