At the February NED Forum event, Heritage Insurance and Sapphire Underwriters outlined potential risks to which Directors and NEDs are exposed by relying on a group corporate insurance policy. Attendees at the event – numbering around 90 in total – learned that according to recent research, 68% of UK business leaders had not even read their corporate policy, and 42% admitted not being aware of the clauses it contained, leaving them vulnerable to potential shortfall in cover.
Grant Mitchenall, Head of Professional & Financial Risks at Heritage Insurance, warned of the possibility of inadequate levels of cover. He explained how a group policy purchase is often cost-driven and normally placed by one individual or department within an organisation. In many cases, all employees of a company may have the rights to be indemnified under the policy; equally cover often includes all group companies not just one entity. This means that there could well be insufficient funds to cover everyone in the event of a claim and directors can be left with nothing. Grant cited the real example of Lehman Bros. when the main board in effect ‘cleared out’ the funds available, leaving nothing for individuals further down the chain.
Nigel Brand of Sapphire went through other issues that a NED may face; they are likely to have little or no control over the group insurance policy; may not be asked any questions when the policy is being drawn up; if he or she retires or leaves, the company may not renew the policy or change its terms leaving them extremely vulnerable.
The best option, according to Grant, is for directors and NEDs to take control of their own destiny through individual indemnity cover. Tailored policies ensure that individual circumstances are taken into account and can be amended as these circumstances change. Cover is ring-fenced from all other claimants.
“NEDs are much more accountable than perhaps they were a decade ago,” said Grant. “Group corporate policies are by no means a guarantee that they have appropriate cover; it is essential that they put adequate protection in place over which they have full control – individual policies are the best way of doing that.”