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Companies take cover for CEO fraud

The Satyam scam has pushed up sharply the demand for the directors & officers (D&O) liability insurance cover. Even small
enterprises worried about claims arising out of a director's wrong acts or decisions are seen to be asking for D&O insurance.

"In the last two months, the number of enquiries on D&O has increased from 4 a month to 15 a month," says Abdul Gaffar Sait, CEO of insurance consultancy Basket Option.

Saket Jalan, CEO of insurance consultancy Orange Financials, echoes that: "We receive 1 to 2 enquiries about the D&O liability insurance every day, which was not the case earlier. There is an increase in fear factor among companies."

The D&O cover is designed for directors and officers in key decision-making positions or are handling large funds for the company. The policy provides cover against any loss that the organization may incur on account of mistaken actions by a director or officer, or against loss arising from claims due to wrongful acts.

Small companies like Insignia Hospitality, Bizprout Solutions and Altech Biotechnology are seen to be enquiring about D&O policies. "We are in the process of finalizing the policies for some of these companies," says Sait.

The premium for the D&O policy can be high. "The premium depends on the degree of exposure of a company to the US (since Americans are most prone to engage in lawsuits), the monetary cover limit requested, type of organization, balance sheet details and capital. The director's past and present details, his experience are also taken into account," says S Narayanmurthy, senior VP for underwriting in Bharti AXA General Insurance.

The D&O liability insurance forms a core component of corporate insurance portfolio of major companies in the US and Europe. "In fact, 95% of Fortune 500 companies maintain such covers. Indian companies are beginning to take strong interest in D&O cover," says Kimsoon Chua, COO of Bharti AXA General Insurance.

Given the less litigious environment in India, the proportion of D&O policies has not been very significant. But this is beginning to change. Even employees who were once silent about workplace harassment and discrimination are now taking action against their employers. Plant closings, layoffs and M&As have become commonplace events that are providing fertile ground for big claims.

Source: TOI


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