D&O cover in vogue as Clause 49 looms

General insurers are looking to up the marketing pitch for Directors & Officers (D&O) liability cover as India Inc scurries to comply with the December 31 deadline on Clause 49 (relating to composition of independent directors).

Dalip Verma, managing director, Tata AIG General Insurance Co, said, "The responsibilities of the top management have been outlined earlier as well. Clause 49, however, ensures more focus on compliance of these responsibilities. Therefore, it is expected that many listed companies will go for directors and officers cover."

Thus far, D&O cover was largely taken by software companies, those listed overseas and those which have an overseas presence, such as ONGC, NTPC and VSNL. The premium income from this segment accounts for a small percentage of the financial lines of insurance under which it falls.

The implications of the Clause 49 on the board of directors include greater personal accountability, deemed knowledge of violations, distinct role of each director as against collective functionality of the board, stricter monitoring and supervision required on the part of non-executive or independent directors.

Yogesh Lohiya, general manager, Oriental Insurance, said, "We have been making presentation to listed companies on Clause 49 and benefits of taking a D&O cover over the last few months."

A shareholder of a company can file case against any director for misuse of corporate funds, Companies Act violations, false statements to government agencies, irregularities in securities issues, breach of duty to minority shareholders, imprudent expansion leading to erosion of shareholder wealth and misuse of inside information for personal gains. However, Lohiya said most of the companies are yet to take a decision.

K Krishnamoorthy, head of underwriting, Bajaj Allainz General Insurance, said companies will seriously take D&O policies with Clause 49 setting in. Thus far number of claims have been small in India. The claims were largely from companies with overseas listing which is largely reinsured.

The premium would depend on a company's financials and its location, among other factors. Large companies go for covers worth $25 million to $100 million and small companies limit themselves to $10 million.