MLP or D&O insurance? Which do you need?
Business owners face a wide variety of risks evolving from both their duty of care and the regulatory landscape. The risk posed by regulatory or legal action is very real, with the potential for significant financial losses emanating from the costs of hefty legal fees and representation, as well as fines or compensation payments, is significant.
This type of loss can affect all sizes of business. Luckily, any business or director can protect their entity, or themselves, against such hits to the balance sheet, or personal assets, in two ways — through a Management Liability Policy (MLP) or a Directors & Officers (D&O) insurance policy. So what is the difference and which do you need?
The answer may depend on where your entity lies within the overall business spectrum. MLP insurance is typically more suited to Small and Medium Enterprises (SMEs), ranging from a micro-sized business to one with a £50m turnover.
An SME’s director is often also the business owner, making it preferable for them to have MLP protection for their company or entity. In contrast, D&O insurance protects individuals and the personal assets of individuals who have a responsibility as a director or officer. It is important to note that, as most claims are brought against the entity, the MLP cover does have more exclusions for the company legal liability cover than a D&O policy does. There is generally, however, valuable cover for health and safety investigations.[1]
MLP typically offers more benefits than D&O insurance. For instance, it can allow a business to progress or defend cases relating to breaches of restrictive covenants, or provide PR assistance, if the business’s reputation needs managing.[2] It may protect a director embroiled in a dispute through their external charity work, and can offer provide legal assistance during an HMRC tax investigation, along with protection against unpaid tax liabilities.
Other MLP benefits might include employee dishonesty cover, to protect against losses incurred through employee theft, or protection against identity theft, or losses incurred through the dishonest electronic transfer of funds.
This greater focus on day-to-day risks, including employment disputes, is something that a Directors & Officers policy may not do. This is not to say, however, that a Directors & Officers policy is not right for some SMEs; it depends on the business transacted, modes of working and an array of factors.
Directors & Officers insurance is ideal for those whose personal assets could be in jeopardy, if a stakeholder or regulator pursued an action against one individual for negligence or wrongdoing. If the company will not provide the director with indemnity, or it does not have a company legal liability insurance policy in place, a D&O policy will offer legal representation to the individuals and provide a means to pay claims. D&O protection also allows a director to focus on the duties and responsibilities at hand, rather than being distracted by trying to find funds to defend an action that could present a risk to business reputation and result in financial distress.
The best way to steer yourself towards the right insurance protection is to consult with your insurance broker, who can analyse your situation and offer the best advice. To discover whether you should be protecting your business or assets with either MLP or D&O cover, talk to us today.
Sources:
[1] Information supplied by Chubb
[2] Information supplied by Custodian Insurance