Standalone D&O best option for German board members

Amongst other things, the law introduces a compulsory deductible for all executive board members of all German AGs – 10% of each claim, to a maximum of one and a half times their annual fixed salary. It must be introduced into the corporate D&O coverage and must be complied with by 1 July 2010.

The law leaves a lot of unanswered questions, and as a new law, it is completely untested. But, as Gerhard Nelke, Managing Director DeTe, Assekuranz, told the recent JLT Salzburg Communications Technology & Media conference, “We had to find a way to interpret it, transform it into reasonable products, and put it into place.”

The law says that the deductible only applies if the company acts against the board member – if shareholders sue a board member, then the deductible does not apply. But, if shareholders sue the board members, then the company will usually need to ask the individual board members for the money. This means that the board members are on their own, with one and a half times their annual salary at risk.

hide

The insurance market has slowly come up with various solutions:

  • a simple ‘follow form’ to the corporate policy with no separate capacity
  • Pool solutions for all board members
  • Separate private D&O insurance which has a ‘follow form’ of the corporate cover
  • Separate standalone private D&O insurance

“The simplest and cheapest of these is the ‘follow form’ to the corporate policy, but I believe this is simply not compliant,” explained Mr Nelke.

According to Mr Nelke, the separate standalone private D&O insurance is the best solution, although it is the most expensive option. “My advice would be to buy more than the required one and a half times salary because of additional defence costs,” he said.

“All of these models are legally untested. But, the general view in Germany is that the separate standalone private D&O insurance is probably the safest and cleanest way as far as compliance is concerned,” added Mr. Nelke.

Back to top button