The IRDA has come up with guidelines to increase font size of fine print in insurance policies to make it easier and legible for investors and prospective insurance consumers
IRDA wants insurance forms to have reasonable font size
The Insurance Regulatory and Development Authority (IRDA) has asked all insurers to use a large font size for printing their forms so that the...
Companies employing likes of Phaneesh Murthy and Tarun Tejpal will have to shell out higher premium for directors and officers insurance. Past record of mismanagement or harassment by the key personnel will hike the premium
Sexual harassment cases involving Phaneesh Murthy, Tehelka’s Tarun Tejpal and former Supreme Court judge AK Ganguly have highlighted the need for corporates to buy Directors and Officers (D&O) insurance to cover several business risks and liabilities. The annual growth of D&O insurance in India is at a spectacular 30% to 40%. While the chances of litigation are definitely higher in the US than in India, exposure to scams, hefty legal fees charged by senior advocates and global practices is an impetus for buying insurance rather than taking the risk of having to defend a possibly frivolous lawsuit claiming crores in damages. Some D&O policies may be silent about covering lawsuits due to sexual harassment and hence buyers need to be aware of it. Each policy is usually tailored for the respective clients and hence the clause can be added.
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What D&O covers and reasons for increase in significance? Satyam scam was a wake-up call for companies. Corporate liability is not just related to sexual harassment, but includes wider aspects like Mis-statement in prospectus, Inaccurate statement of financial conditions, Errors in annual accounts, Conflict of interest, Lack of judgment, diligence, good faith, Mismanagement of funds, Unfair allotment of shares, Using insider information, Unwarranted dividend, salary, compensation payments, Unfair dismissal of an employee and so on. All these are cases for D&O cover.
According to Sushant Sarin, Sr VP - Commercial Line, TATA AIG General Insurance, “Directors and officers take out D&O insurance to protect themselves against a multitude of wrongful act, error or omission allegations against them in the course of their official duties. Sexual harassment allegations are no doubt covered but represent only one of multiple types of allegations. In our experience, D&O insurance is fast becoming recognized by Company managements as a policy they must have to secure themselves against personal liability for managerial acts. That this policy also responds to allegations of sexual harassment makes it that much more important as a risk management tool in addition to setting up Vishakha committees etc.”
There is a new reason to consider buying D&O insurance – new Companies Bill 2013. According to Dr Amarnath Ananthanarayanan, CEO and MD, Bharti AXA General Insurance, “New Companies Bill, 2013 has also created a conducive environment for selling D&O insurance in India - a lot of new measures have been taken to bring more clarity; for example, for the first time duties of directors have been defined in this bill, the concept of class action suits has been introduced, the definition of officer-in-default has been widened, restriction on the companies to indemnify its directors has been removed. In view of the above, in my opinion the D&O business is expected to grow significantly say by 60-70%.”
Sanjay Datta, Chief – Underwriting and Claims, ICICI Lombard, says, “There has been an increase in interest in the D&O cover across the board both because of the recent high profile cases and also because of New Company’s Act. There is a lot of interest from customers on how the policy deals with these situations. We have written over 500 policies so far this year and have seen about a 30% increase in D&O business.”
D&O premium as per key personnel profile Sushant Sarin, says, “Corporate governance standards followed by companies are a factor in pricing the insurance cover. It is a norm to cover all directors and officers of a company rather than only some.” According to Dr Amarnath, “Director’s profile is an important factor while underwriting D&O policy. However, the underwriting philosophy may vary from one insurer to the other in terms of acceptance of risk.”
Sanjay Datta, says, “Though the policy covers not only the board of the company, we do look at the profile of the board and the important executives of the company. We are more cautious about underwriting risks where any of the key personnel have a past record of mismanagement or harassment. For a basic cover, a $1 million policy would cost about $2,000.”
What D&O won’t cover? Tata AIG view – “Under law, any contract that is against public policy is void. Accordingly, since it would be against public policy to cover fraud, an insurance contract cannot do so. However, this rule applies only if and when fraud has been established. Merely an allegation of fraud does not suffice to void a contract. When faced with an allegation of fraud, a director or officer will want to defend him/her against such allegation. For this, s/he would want to use the services of a capable lawyer which would mean considerable expense. The D&O policy pays such defense expenses incurred by directors and officers. If capable defense helps them establish their innocence the policy has served its purpose.”
Bharti AXA – “Any fraudulent act or omission or any wilful violation is excluded from the scope of D&O policy. The D&O cover usually provides for defence cost unless specifically excluded under the policy.” ICICI Lombard – “The D&O policy covers defence costs incurred by or on behalf of directors and officers in defending allegations of fraud. But the cover in the policy ceases in case the director has been convicted for or if he confesses to criminal acts including fraud.”
Even though the product takes care of the lump-sum payout issue, will your family really benefit from the Aviva India i-Life Secure life insurance policy?
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