There are four million U.K. companies, but how many buy D&O insurance?

Red phone booth on London street with Big Ben and other buildings in the background

At the end of March 2018, the number of companies on the total register of U.K. companies surpassed four million for the first time ever, reaching 4,033,355. Although the number on the effective register (i.e. companies not in dissolution or insolvency) is lower at 3,770,022, it too is at historic highs.

By some estimates, the total number of directors of U.K. companies is as high of 13 million— although this probably includes companies which are not actively trading for one reason or another.

What light these statistics shed on the health of the U.K. economy is difficult to say. At a minimum, they suggest a high level of activity if not necessarily productivity. Interestingly, the number of new companies registered in the first quarter of 2018 was in fact down 1.4% during the same period in 2017.

One question which is asked from time to time is this: How many U.K. companies and directors buy D&O (directors and officers) insurance? There is no easy answer, not least because only a tiny portion of companies are publicly traded and are thus required to state whether they purchase D&O insurance—and even these companies do not need to disclose how much they buy.

If one assumes that the overwhelming majority of U.K. companies are small and privately owned, and that a hypothetical premium of 1000 pounds might deliver up to £1 million of coverage, this would suggest the total U.K. premium pot could be as large as £3.7 billion. That is even factoring in the very much larger (and therefore more expensive) limits purchased by the biggest companies.

Of course, many U.K. companies are subsidiaries within a larger group, and so would not buy separate D&O insurance. We can nevertheless still assume that a significant number of standalone U.K. companies do not buy this class of insurance at all, and that is because the total global D&O premium pool (including the U.S.) is estimated at only some $10 billion. There is no way that the U.K. accounts for anything close to a third of that total. Indeed, the same Munich Re report suggests that the total premium share for the whole of Europe is only $2.6 billion, and some 60% of the total is accounted for by U.S. sales.

So why do these statistics matter, apart from acting as a spur for brokers to go and sell more policies?

One thing not always appreciated about the D&O insurance coverage available to small companies is that such policies can cover not just the directors and officers (as the name implies). It also covers the corporate entity itself, in respect of its own liabilities.

This is quite a significant extension to the protection generally offered. Indeed, it may not be too much of an exaggeration to suggest that these policies, while subject to specific exclusions, can act as a safety net for smaller companies, in respect of liabilities not otherwise covered by other lines of conventional insurance. Maybe there is a case then for rebranding at this end of the market? Of course, that is always subject to what may be in the small print of individual wordings—which is perhaps a more worthwhile wake up call for all good brokers!

About Francis Kean

Francis is an Executive Director in Willis Towers Watson's FINEX Global, where he specializes in insurance for Dir…
Categories: Claim & Risk Control, Directors & Officers, Insurance and Risk Management | Tags: , , ,

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