Liability insurance for top management: ways to develop the institution in Russia

Russian directors of large companies have started to apply for liability insurance for their senior management personnel more frequently. This insurance is called D&O insurance (directors and officers).

The issuance of a relevant insurance contract is an indicator that the management decisions of a particular manager are confident. Provision of such service increases interest to the company on the stock market.

The insured, as a rule, are the company’s senior personnel involved in day-to-day management. In Russia, this service is not mandatory, but in some countries obtaining a relevant policy is a condition for entering the securities market. This instrument of protection has several peculiarities:

• Protection against management errors

This institution is not intended to provide protection against the actions of the managing director for his own enrichment, even if he acted within the scope of his authority. D&O insurance also cannot cover damage to health or life.

For greater accuracy, D&O insurance policies tend to spell out the terms of occurrence of insured events in detail, because the regulatory framework is not detailed, and the positions of legal experts are not unified.

• Management and reputational advantages

As mentioned above, D&O insurance increases the market’s interest in a particular company. In addition, this contract allows businesses to be more proactive in making difficult decisions, which is particularly important in a competitive market.

For those in management, such a contract is also necessary for a few other reasons: some projects can be so heavy that they often need a guarantee of a free exit in the event of failure. A liability insurance contract offers such an advantage. The insurance service can additionally provide lawyers and attorneys for protection purposes.