Beazley: Reduce complexity with global D&O cover – Michael Rieger-Goroncy

More than ever, company directors working in unfamiliar countries and jurisdictions need robust D&O coverage. Michael Rieger-Goroncy of Beazley explains why working with his firm - a Lloyd's of London insurer licensed to operate in 79 countries - can save businesses valuable time and money.

In 2009, the title for the FERMA conference was 'Global village: the future of risk management'. Two years later, life in the village is far from harmonious. Political unrest in the Middle East and North Africa, and extreme economic volatility in the eurozone and North America have contributed to the world becoming a much more unstable place, with the risk of nationalist and protectionist reactions from governments increasing daily. As a result, company directors working in unfamiliar countries and jurisdictions require reliable, far-reaching directors and officers liability insurance (D&O) coverage.

In the past, directors have taken comfort in the fact that their global D&O policy purported to afford them cover all around the world. However, many governments are now requiring directors and companies to use policies that comply with local legislation. The penalties for failing to do so are significant; either a sanction against companies and their insurers or - more ominously from the director's perspective - a prohibition on the payment of D&O claims under a global policy.

The problem is particularly serious for directors when they are operating in overseas jurisdictions
that forbid companies indemnifying directors, meaning they cannot be protected by so-called Side B D&O cover. In these cases, the director will be personally liable for costs arising for local legal representation to conduct their defence. In the absence of dedicated Side A cover that complies with local requirements to cover such costs, they will be completely on their own.

A flexible policy

So how can insurers help to resolve this? Some are now offering local policies provided by their regional subsidiary or a local partner fronting the policy. However, this can prove both costly and complicated - especially if the local insurer is not an expert in writing D&O insurance. Experience shows that getting local policies fulfilled is, at best, a difficult and time-consuming task. Problems often arise when dealing with local laws and regulations, negotiating different terms and conditions for each jurisdiction, and, finally, consolidating all of this coverage in the global policy.

Of course, everybody dreams of buying a genuinely global policy that offers compliant coverage in each jurisdiction without having to resort to local policies. While there is no panacea, the problem can be significantly eased by working with an insurer licensed to write direct business in a wide range of countries.

Beazley, like other Lloyd's of London insurers, is licensed in 79 countries and can offer immediate coverage in many territories. This prevents the need for complicated, time consuming and costly local polices in these countries.

Furthermore, Beazley is able to offer this solution even when it is not the primary insurer on a programme, but on an excess layer only. The risk manager can elect to buy an additional Beazley Side A excess endorsement with an 'international drop down' provision. While this may not always prevent the company from having to buy local policies (for example, in Brazil, where Lloyd's is not currently licensed), it will often help to make the placement of an international programme much easier, faster and less expensive than if the primary insurer needed to issue local policies for all territories.