Could directors and officers insurance aid UK small businesses?

Two thirds of small firms in the UK were unaware of what directors and officers liability insurance is, despite the potential benefits such cover brings, according to a recent study.


Allianz Insurance polled 1,000 SMEs and mid corporate businesses and found that 54% of them did not realise a company director can be held personally and legally liable for a business decision.


Given the greater focus that is placed on regulation and litigation in the UK, having cover to protect firms is important, regardless of their size.


Those in the study identified data security, credit risk and reputational risks as the top three risks facing their businesses, named by 25%, 19% and 15% of bosses respectively.


Where reputational risks were concerned, more than a third said they had concerns about what a wrongful act by a director or by senior management could mean.


Some 32% of bosses also feared making a decision that loses money for a client’s business while 27% said they were unsure of how to handle employment practice claims against those in positions of power.


For small businesses these issues can be of particular concern as many of them will lack an in-house legal team or representative to manage any claims that are against them.


Having directors and officers insurance can provide access to specialist lawyers and consultants so that issues can be dealt with in an effective manner.


It also means that directors and others at the top can make vital business decisions without the fear of any reputational or financial consequences.


Firms without such cover could open themselves up to damaging, and often expensive, claims that can place significant pressure on the finances of a company.


Depending on the type and size of a claim, dealing with it could leave a company in need of insolvency procedures or alternative support.


Tackling this risk at source is therefore important although the outcomes of the research suggest that knowledge surrounding directors and officers insurance is surprisingly light.


SMEs should therefore consider the options that are available to them and make decisions based on what suits them best as a company.


By Phil Smith


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