Directors and officers (D&O) insurance

What is D&O insurance?

Directors and officers (D&O) insurance is a liability policy that protects the individuals who run a company against personal financial loss from claims alleging a wrongful act in their managerial role, such as breach of duty, negligence, misstatement or failure to comply with law. It pays legal defence costs, investigation costs and, where permitted, settlements or damages. The company buys the policy, but the main beneficiaries are the directors and officers themselves.

The need comes from personal exposure. Under Indian company, securities, tax, insolvency and labour laws, regulators and claimants can pursue directors individually, and the cost of defending even an unfounded case can be large.

How D&O insurance is structured

A D&O policy usually has three or four insuring clauses:

D&O policies are written on a claims-made basis with a retroactive date. Typical exclusions include fraud or deliberate wrongdoing once established by a final judgment, personal profit the insured was not entitled to, prior known circumstances, and bodily injury or property damage (which belong under general liability).

The legal framework in India

• SEBI LODR Regulation 25(10). The top 1,000 listed entities by market capitalisation must take D&O insurance for all their independent directors, for a quantum and risks decided by the board. The requirement started with the top 500 in October 2018 and widened to the top 1,000 from 1 January 2022.
• Companies Act, 2013, Section 197(13). Premium paid by a company for insurance that indemnifies its managing director, whole-time director, manager, CEO, CFO or company secretary against liability for negligence, default, misfeasance, breach of duty or breach of trust is not counted as their remuneration. If the person is proved guilty, the premium is then treated as remuneration.
• Section 149(12) of the Companies Act limits the liability of independent and non-executive directors to acts done with their knowledge, consent or connivance, or where they did not act diligently. This narrows, but does not remove, their exposure.

SEBI orders since 2024 holding independent directors and audit committee members personally accountable have kept D&O on board agendas, and commentators report that premiums have risen in that period.

What D&O insurance means for distribution

• It is a board-level sale. Buyers are company secretaries, CFOs and board risk committees. The conversation is about personal protection of named individuals, the adequacy of the limit and the wording, not about price alone. Specialist brokers dominate this business.
• Listed companies are a mandated market; unlisted ones are the growth market. Beyond the regulatory mandate, venture-funded start-ups, NBFCs, family companies taking outside capital and firms preparing for an IPO buy D&O because investors and incoming independent directors ask for it.
• Wording comparison is the core service. Definitions of "claim", "loss" and "insured person", the severability of the proposal, and allocation between covered and uncovered parties decide whether a policy responds. Intermediaries should be able to explain these, not just present quotes.
• Continuity at renewal is critical. Because cover is claims-made, changing insurers without preserving the retroactive date, or failing to disclose known circumstances, can void protection for past decisions. A renewal checklist protects both client and intermediary.
• Disclosure scrutiny is rising. IRDAI's September 2026 consultation on distribution reforms proposes commission disclosures on specified commercial policies. D&O placements are likely candidates, so brokers should be ready to explain their remuneration openly.