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Solutions for D& O insurance coverage

As previously discussed in 2021 Trends for Directors & Officers liability insurance, there are many global market trends that is putting the pressure on Directors & Officers insurance coverage; thus boards are challenged to find insurance coverage. Reliance Insurance has solutions for D&O insurance coverage.  These pressures have driven underwriters to exit the market, and those who stay are reducing their risks. So for some Canadian companies even getting a $1 million in coverage can be challenging. Teri Hayes, Reliance Insurance D&O risk analyst has researched and studied the market bringing insight and strategies to many industry sectors such as mining. Reliance has a creative approach to helping companies get the appropriate D&O coverage including multi million-dollar coverages.

Outside forces putting pressure on boards
Directors and officers often face complex situations, frequently out of the control of the company, that can lead to exposure, risk, and financial devastation.  Over 32% of companies feel that D&O insurance is covered by other insurance policies, but that is often not the case. We emphasize the importance of having management liability coverage that address the exposure inherent in a specific business. 

There are several business scenarios that can lead to challenges in finding not only adequate but superior coverage for liability:

  1. Canadian public companies on Nasdaq - once a public company is listed on the Nasdaq, the underwriter will re-evaluate the D&O coverage. This often leads to a higher risk profile because of the litigious environment in the United States.
  2. Rapid business growth - when a company expands at a rapid pace – adding intellectual property, staff, equipment, or other resources, this can change the nature of the exposures.
  3. Competitor pressures - competition can change the dynamic of how a company is operating in their respective market.  It is imperative to understand that poaching staff or clients and stealing of intellectual property when employees jump from one competitor to another – can lead to lawsuits from a competing company.
  4. Public vs. private companies - if a company goes from private to public it can affect the D&O coverage, deductibles and statutory declaration. Public company D&O policies allow companies to choose their own defense council. This is one of the major reasons public D&O policies cost significantly more than private D&O policies. In a private company, the defense council is assigned by the insurer.
  5. Merger objection litigation – the frequency and the average costs associated with merger objection litigation is increasing. These lawsuits represent a significant financial burden on the defendant companies and on their D&O insurers. 

Solutions for D&O insurance coverage

Reliance Insurance D&O advisors – Angus Reid and Terri Hayes, have recently worked with two well-known mining companies to usher through a complex solution for D&O insurance. One a lithium mining company with mining operations in the United States and a uranium mining company – with a mine in Saskatchewan.  Both had more than one challenge to contend with including  being listed on the Nasdaq Stock Exchange. 

First and foremost, the key to finding the right coverage is understanding the specific industry and carrying out due diligence within the markets including precedents and court cases.  This helps the analyst build the profile to find the correct underwriter.  A more common solution to overcome the barriers to getting the high value coverage limits is to build a multi-carrier (underwriter) structure that spreads the risk, fills the gaps in coverage and minimizes the underwriters exposure. This is a complex dance working with clients and various partners. 

Next steps to evaluate D&O coverage

If your company is going through any changes and you need to review your D&O coverage, connect with our analysts to provide you with an evaluation and risk management recommendation.  We have the expertise in many key Canadian industries including mining, manufacturing and construction. 

Resources:
Video:  2021 Trends in D&O insurance

Video: Compelling reasons to have D&O coveragehttps://reliance.ca/commercial-insurance/liability-insurance/directors-officers/

Directors & Officers Insurance

Emerging risks and trends for Directors & Officers liability insurance

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