When is D&O enough?
I wanted to call this post, "Is D&O enough?" but decided that was too easy of a question. No, D&O is not enough. It almost does not even matter what the question was; it's not enough.
FinTech companies have a multitude of issues facing the leadership team: in the simplest terms, these are (1) what to do; (2) how to do it; (3) where is the money going to come from? Innovators in any industry spend a great deal of their time innovating and looking for a better, more efficient way to deliver their product or service. The focus of the leadership team is on the business and making the business successful. Few company CEOs or CFOs of development stage companies spend any time wondering about risk and insurance. Most don't even think about insurance until they are forced to do so.
Typically the first inquiry into insurance is either Workers Compensation or General Liability. In many states, Workers Compensation is "statutory". This means. that the company is required by law to purchase. Failure to purchase may result in a fine, penalty or other consequence. The General Liability conversation usually starts when the Client is leasing their first office space and the landlord asks for a Certificate of Insurance. Then the Client calls in a rush wanting to know how quickly we can place a basic GL policy for them.
Often, Directors & Officers Liability does not come into the equation until much later. When companies begin to implement a large board of directors or start raising capital outside of the 'friends & family', they start to think a little more about the potential for personal liability if something goes wrong.
Directors and Officers Liability coverage was created to address the exposure of stakeholders who may find fault with the decisions made in managing the company. I like to call this Corporate Malpractice insurance because I think it gives a good idea of the kinds of exposures that are covered. Directors and Officers Liability coverage addresses three areas that you care about. We frequently call these Coverages A, B, and C. While carriers may differ on their actual insuring agreements, A, B, and C are often referenced by D&O specialists and we will all know what you mean when you use these terms. More to come on how A, B and C work, how they work together, and how to structure your program to the greatest benefit of your company.
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Monica M. Minkel, RPLU, MLIS, cyRM, CPLP has been working exclusively with Directors & Officers Liability, Professional Liability, Cyber Liability and related products for nearly 20 years. She started her interest in finance by loaning money to her mom at age 11 (complete with a loan agreement and competitive interest rate). She is passionate about all things in the financial industry and the way technology is changing the way capital markets function.