Financial Daily from THE HINDU group of publications
Thursday, Nov 10, 2005
Money & Banking
Corporate - Trends
D&O insurance policies market picking up
Mumbai , Nov. 9
THE sale of Directors and Officers Liability (D&O) insurance policies is seeing a growth in terms of volume.
Compliance to Clause 49 of the listing agreement of bourses and globalisation of Indian companies are factors prompting corporates to purchase D&O insurance, industry representatives said at a seminar in Mumbai today.
Mr Andrew Clarke, Executive Vice-President (Corporate Broking), Aon Global Insurance Services, said that market for D&O Liability has been growing.
"Clause 49 raises the bar on reporting and compliance. The fact that there have been claims coming in from such policies and that some Indian companies are now listed in the US has also caused growth in terms of volume in this segment".
Clause 49 specifies a code of conduct for Board members and senior management of companies.
It requires CEOs and CFOs' certification of financial and cash flow statement. On the other hand, it also seeks 50 per cent of the board to be represented by independent directors.
According to data from HCC Global Financial Products, as per Clause 49, around 4,200 grade A listed firms would each have to hire four independent directors. This implies 15,000 trained, qualified independent directors would be needed.
In India, D&O liability insurance is mainly purchased by companies that are listed overseas especially in exchanges such as Nasdaq.
Most buyers in India are from the IT sector, followed by pharmaceutical and auto companies.
According to a senior official from HCC Global Financial Products, an international insurance and reinsurance company, almost 99 per cent of the publicly listed companies in the US purchase D&O insurance policies.
Between 1996 and 2004, the number of companies sued in securities litigation in the US rose nearly 115 per cent.
In Western Europe, the penetration of D&O is around 20-30 per cent. A less litigious environment in India is one of the reasons that the proportion of D&O policies is not very significant.
Analysts say that while globally D&O policies rake in around $2-4 billion annually, India accounts for just $20-30 million.
However, the awareness is spreading.
Mr Neeraj Tuli of Tuli and Co Solicitors and Advocates said that the claims from Directors and Officers policy are rising.
"We are now seeing many D&O liability insurance claims mainly for regulatory reasons. Foreign joint venture partners are suing their local partners for reasons like transfer of their expertise or personnel to independent entities owned by the domestic partner".
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