Saturday July 7, 2007
Boost for directors, officers insurance
By DALJIT DHESI
[email protected]
PETALING JAYA: The directors and officers (D&O) liability insurance in Malaysia is expected to get a boost, in terms of penetration rate, following the recent cases of auditing irregularities involving listed companies.
It is learnt that several listed firms have approached insurance brokers for such coverage and others that had earlier declined to take such a policy are now showing interest in getting one.
But, at the same time, insurers that have big D&O portfolios have become more cautious and prudent in issuing such policies, sources told StarBiz.
The sources said previously, companies were reluctant to take up such schemes because of the high premium and lack of awareness of the benefits.
“As at June 26, there were a total of 1,012 companies listed on Bursa Malaysia, of which an estimated 400 buy D&O insurance.
“This is about 40% of the listed companies, a far cry compared with Singapore where it is believed close to 80% of the listed companies buy such policies,” a source said.
In the United States, for example, directors of listed companies would not sit on any boards unless they were adequately covered, the source said.
Following the Enron Corp and WorldCom accounting debacles and the introduction of the Sarbanes-Oxley Act, demand for D&O liability insurance had surged globally, he added.
A spokesman for a leading D&O insurance firm said: “The recent events, which resulted in the resignations of directors and CEOs of listed companies, have increased managements’ awareness of their potential liabilities and the need for adequate insurance protection.
“There has also been an increase in the focus on such coverage by the directors, especially in areas of investigation and criminal defence as the regulators have become more proactive in taking enforcement action.”
Premiums for these policies vary, based on the type of industry, size of the company and its financial health.
“Generally, premiums can be as low as RM5,000 for protection of RM1mil. The average premium for smaller capitalised companies is RM15,000 to RM25,000 for coverage of between RM3mil and RM5mil,” the spokesman said.
The leading players in D&O insurance include AIG, ACE Insurance and Labuan-registered Federal Insurance Co, a member of the Chubb Group of Insurance Companies.
D&O insurance helps directors and officers pay for legal fees, expenses and any court-ordered damages.
A source said currently, the Companies Act 1965 generally prohibited firms from indemnifying their directors and officers from breaches of duty, hence potentially making them personally liable for any loss.