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Insurance explained
Buying D&O insurance cost-effectively means getting directors' liability cover that will respond to the claims your board is likely to face, at a premium that reflects your actual risk. It matters because the lowest-priced policy can prove expensive if its wording fails when a claim arrives.
Part of: Commercial insurance
In short
D&O premiums in the UK are driven mainly by a company's financial strength, sector, claims history, governance, any US exposure and its growth or funding plans. Buyers control the rest: the limit, the retention, whether to add Side A or combine D&O with employment practices and crime cover, and how well the risk is presented. Under the Insurance Act 2015, a clear and complete presentation is a legal duty, and it also tends to produce better terms. Starting renewal early, comparing wordings rather than just prices, and using a broker who knows the market usually give the best value.
Directors and officers insurance protects directors and officers personally against claims alleging a wrongful act in their role, and usually reimburses the company where it indemnifies them. Under section 233 of the Companies Act 2006 a company may buy and maintain this insurance for its directors, while Chapter 7 of Part 10 limits how far a company can exempt or indemnify directors itself.
Cost-effective buying is not the same as buying the lowest premium. It means:
Underwriters look at the same core factors across the UK market, although each insurer weights them differently.
| Factor | Why insurers care | What you can do |
|---|---|---|
| Financial strength | Losses, thin cash reserves or heavy debt raise the risk of insolvency-related claims | Supply recent accounts, management accounts and a short commentary |
| Sector | Regulated, high-growth or high-risk sectors attract more claims and investigations | Explain your compliance framework and controls |
| Claims and circumstances history | Past claims suggest future ones | Give full details and explain what changed afterwards |
| Governance | Board structure, independent oversight and risk management affect the likelihood of mistakes | Describe board composition, committees and policies |
| US exposure | US subsidiaries, assets or investors raise exposure to US litigation | Be precise about the extent of US activity |
| Growth and funding | Fundraising, acquisitions and rapid expansion create investor and disclosure risk | Share plans early; see D&O when raising investment |
For early-stage businesses, what D&O costs for startups explains how these factors apply when there is little trading history.
The limit is usually aggregate, shared by all insured persons and often by defence costs. Too low a limit can be exhausted by one investigation; too high a limit costs more than it protects. How much D&O cover a startup needs sets out how to think about it.
The retention, or excess, usually applies only where the company reimburses directors. A higher company retention can reduce premium, but only choose a level the business could pay comfortably in a bad year.
Side A pays directors directly where the company cannot or will not indemnify them, for example on insolvency. An additional Side A limit can protect individuals if the main limit is used up. See Side A, B and C explained.
Smaller and mid-sized companies can often buy D&O alongside employment practices liability and crime in one management liability policy. This can be more efficient than separate policies, but check whether limits are shared between sections.
Check what other policies already cover before adding extensions. Employment claims may already sit under a standalone EPL policy, and some professional firms find that their PI policy and D&O overlap on certain regulatory matters. Equally, if investors have asked for specific terms, such as a minimum limit or cover for nominee directors, build those in at the start rather than adding them mid-term. Our page on whether investors require D&O explains what is commonly requested.
For business insurance, section 3 of the Insurance Act 2015 requires a fair presentation of the risk before the contract is entered into. That means disclosing every material circumstance the insured knows or ought to know, or enough to put a prudent insurer on notice to ask further questions, in a way that is reasonably clear and accessible. Material statements of fact must be substantially correct.
A good presentation helps on price as well as protection. Underwriters who understand the business are less likely to add loadings, exclusions or a high retention to cover gaps in information. Useful material includes:
See D&O proposals, fair presentation and severability for how the proposal links to severability.
These examples are illustrative only and do not describe real companies or quotes.
Illustrative example 1: a funded tech company. A company about to raise a Series A presents its board changes, investor terms and growth plan in advance. Insurers can price the change in risk at renewal rather than imposing it mid-term or adding a restrictive exclusion.
Illustrative example 2: a family manufacturer. A profitable private company with no US exposure buys D&O, EPL and crime together in a management liability package, choosing a moderate retention it can absorb.
Illustrative example 3: a company under financial pressure. A business with recent losses expects insurers to focus on solvency. Providing management accounts and a cash flow forecast early gives underwriters a fuller picture, and the board looks closely at Side A and the insolvency exclusion.
D&O quotes can look alike on a summary page while differing a great deal in the wording. Two policies with the same limit may treat investigation costs, insolvency, claims by major shareholders or outside directorships very differently. A cheaper quote with narrower definitions or extra exclusions may offer less value than a slightly dearer one that would actually pay. Our guide to D&O policy features to compare lists what to read side by side.
Another misconception is that a company indemnity in the articles makes insurance unnecessary. The Companies Act 2006 restricts what a company can indemnify, and an indemnity is worthless if the company is insolvent or refuses to pay.
A broker can approach several insurers, explain your risk and negotiate terms on your behalf. Our page on broker versus direct business insurance sets out the differences. Apex arranges D&O and management liability insurance; a broker reads every enquiry.
Present the risk clearly with up-to-date accounts and governance information, choose a retention the company can absorb, set a limit based on realistic claims rather than guesswork, and consider combining D&O with EPL and crime in a management liability policy. Starting the renewal early also gives time for a broker to compare insurers.
Insurers usually focus on financial strength, sector, claims history, governance, US exposure and plans for growth or fundraising. A company with losses, a regulated activity or US operations will usually pay more than a profitable private company with stable ownership, all else being equal.
Sometimes. On most D&O policies the retention applies when the company reimburses directors, not when directors claim directly under Side A. A higher company retention can lower premium, but only if the business could comfortably pay it during a difficult year.
Yes, if it is material. The Insurance Act 2015 requires a fair presentation of the risk, which includes every material circumstance you know or ought to know. Failing to disclose a dispute can give the insurer remedies and may leave the matter excluded anyway.
It can be more efficient for small and mid-sized companies, because one insurer underwrites all sections together. Check whether the sections share a single limit, which can reduce the protection available for each type of claim.
Tell us what your business does, your turnover and any claims. A broker reads every enquiry and comes back with options. No fee for a quote. Or call 0117 325 0027.
Start a D&O quote Request a callbackApex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances, and it does not guarantee that cover will be available or on what terms.
