“Modern corporate governance standards mean that NEDs are facing higher expectations and increased scrutiny from their roles on corporate boards. In the end, it is their personal liability that is engaged.”
There’s always room for innovation in insurance and last week saw the launch of a specialised D&O insurance product aimed at non-executive directors (NEDs), in recognition of the unique risks and challenges the team at Rising Edge see facing this segment of the corporate world. Discussing NED Protect, Rising Edge CEO Philippe Gouraud (pictured) revealed where it fits in the pantheon of existing products and how it reflects the ongoing evolution of D&O insurance.
“The D&O product itself is actually a coming-of-age type product,” he said. “It’s not a new product like cyber or some of the gig economy products coming out, but it’s not like property or marine insurance either. It’s only 30 or so years old and, over those 30 years, it has evolved to meet the needs of the market. So, today, when you look at the commercial D&O offering, it’s a good offering that responds to the needs of the buyers.
“And that’s what buyers want – a market that evolves to provide a very comprehensive product that actually delivers value. But through that journey over the last 30 years, I think the product has lost a little bit of its original intent in terms of focusing on providing protection for the personal liability of directors and officers.”
Gouraud noted that, in the UK, directors have unlimited personal liability when they join a UK board, which means their entire asset base is exposed on an unlimited basis. That’s something that seems to have been somewhat forgotten as D&O insurance has evolved, he said, and an area pinpointed as being of particular concern by the Rising Edge team.
Recent case trends reveal that NEDs tend to be the last involved in the claims settlement resulting from litigation, he said, and so are often the last to access the coverage available from traditional corporate D&O coverage. Conversely, modern corporate governance is charging NEDs with playing significantly increased roles on corporate boards. There is now much more expected from NEDs in terms of oversight and governance and these increased expectations are leaving NEDs on the front-line in the event of something going wrong.
“We recognised that we need to address that gap,” he said. “And I want to really emphasise again that the traditional commercial D&O offering is an outstanding offering. It’s a great product and it’s what we provide. But it has some gaps that we felt it was really important to address.”
Identifying exposures and creating the products required to bridge them requires careful observation. It’s about always challenging yourself to think about the problem at hand from a different perspective, Gouraud said, and to set yourself the challenge of continuous improvement of the product and the claims experience.
In the early days of developing NED Protect, he said, it became clear that often there was not much Press coverage of the claims being made, because often these cases are dealt with behind closed doors. Without a lot of publicly available information, it can be a challenging and isolating time for NEDs who are facing a claim, which is why it’s so important to have access to an insurance specialist who is familiar with these types of claims and situations and who can walk them through the next steps.
“We recognised the issue, but we also recognised that a big piece of this is about the education needed for directors, and, in particular, for non-executive directors,” he said. “That’s in terms of not only what their roles are – and I think there’s an increased focus on explaining to directors what their responsibilities are – but also what their exposure is in respect to not performing their roles. Because it’s not only a case of what they do being negligent nowadays - not doing is being negligent and not knowing is being negligent.
Gouraud emphasised that more and higher quality education is required to ensure that directors understand that if a company goes bust then, unless they have a very solid D&O insurance policy in place, they’re on their own. They also need to be advised on what happens during such an event, he said, as during a time of such high stress, it’s critical to know who your D&O insurer is and how they can support you.
“Our NED Protect product is really there to provide that ultimate backstop, to provide that peace of mind to NEDs and say, ‘look, this is your coverage. These are your dedicated limits, this is the number you can call for help’. And you won’t have to wait 10 years to figure out whether you’re going to be protected or supported. You can confidently accept any NED role and perform that role, knowing you have that backstop in place.”
The coverage is not competing with traditional commercial products, he said, but rather serving as an additional enhancement to existing coverages, which is what makes it quite unique. He also believes this, in turn, will have a positive impact on the makeup of corporate boards, because this peace of mind protection will encourage the best people to take up an NED position with confidence.
Looking at what’s next with regards to the rollout of this new coverage, Gouraud said brokers are key to its distribution strategy.
The education focus at the heart of the rollout of NED Protect is Rising Edge’s contribution to the wider effort to create a healthier and more educated D&O insurance marketplace, he explained. It’s clear that the industry at large should be doing more on this education piece, he said, and the plan is to run a series of roadshows that allow the team to go out and discuss the product, how it works and what it can do with brokers across the UK.
“For brokers, I see this [product] as an opportunity to enhance what they're already providing to their clients,” he said. “I think the brokers who embrace this will also probably differentiate themselves in a very competitive landscape by raising awareness that there actually is a gap in the product that has traditionally been sold. And that gap can be filled with products such as NED Protect.
“And I couldn’t think of anything better than another insurer coming out tomorrow and saying, ‘this is a great idea, we’re going to do it too.’ I really would welcome that because the more people who actually embrace these products, the more the need for these products will be validated. That’s our intention – to contribute to making the overall landscape better.”
