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April 24, 2014
Companies in India have been snapping up D&O insurance policies to cope with new provisions in the Companies Act that kicked in on 1 April, so as to obtain protection in case their directors or senior executives get embroiled in allegations of fraud or mismanagement.
“We have seen a significant uptick in D&O policy sales ever since the new Companies Act sections were unveiled in November. Companies, which have taken this policy, are increasing their cover,” Mr Sushant Sarin, Senior Vice President – Commercial Lines of Tata AIG General Insurance, told the Hindu Business Lines. The number of policies sold has grown by 25-30 percent this year, and more sales are expected in this class of business.
The new legislative provisions set stiff penalties for auditors, directors and top managers if the company they work for is accused of fraud or mismanagement. “Penalties, which were in hundreds and thousands of rupees, now run into lakhs (hundreds of thousands),” said Mr Jamil Khatri, Global Head of Accounting Advisory Services at KPMG.
Mr Sarin said that listed companies, particularly from new-age sectors such as IT, entertainment, communications and biotech, opt for a higher cover as their stock price is more volatile than, say, that of a manufacturing company.
The sum assured on D&O policies starts from INR10 million (US$164,000) rising to INR5 billion. Premiums vary from INR50,000 to INR100,000 for the minimum cover to about INR20 million to INR30 million for higher covers. “While limits vary from industry to industry, companies tend to take 10-20 per cent of their turnover as cover. The base (premium) rate comes to around 0.2 percent, and again it depends on the kind of risk and industry the companies are in,” said Mr Sanjay Datta, Chief of Underwriting and Claims at ICICI Lombard General Insurance.