General insurers like ICICI Lombard, Tata AIG, and HDFC Ergo are likely to see a surge in demand for their Directors' and Officers' Liability (D&O) policies after the Kotak Panel has suggested that such a cover be made mandatory for independent directors.
The Kotak Panel had, last week, suggested that it be mandatory for top-500 companies by market capitalisation to take D&O insurance for its independent directors.
The directors, if held personally liable for their own and fellow directors' decisions, can face financial loss through litigation from shareholders, creditors, competitors, suppliers, regulatory bodies. Under such circumstances, the D&O policy provides security to the directors.
"We expect the demand for D&O covers to go up after the panel recommended mandatory cover for independent directors," said Sanjay Datta, head of underwriting, ICICI Lombard General Insurance.
"Every time there is an event like a board fight or a case like Satyam, demand for D&O cover goes up, We see enquiries and the size of cover going up in such events." There are two parts to the D&O policy one covering breach of duty, neglect, misstatements or errors by the entity and employees and the other by directors.
The recent Tata-Mistry spat has brought to light the dire necessity to undertake D&O covers. This policy insures a company against the threat of damaging lawsuits. Post the Tata-Mistry spat, independent directors have been asking for cover under the company's policy, said Datta.