More Company Directors Seeking Liability Insurance

August 27 - The pending Companies Bill has been seen by many segments as a welcome law in the South African economy overall. The bill essentially aims to improve regulatory oversight and protection for company shareholders, with emphasis on the fact that company directors and executives can be held personally responsible for damages caused to shareholders and employees.

However, with added protection for employees and shareholders comes trepidation from the directors and executives themselves as they are now left in a much more vulnerable position.

As a result of the pending bill, market analysts have noted a rising demand for liability insurance by executives. "The increased activity we have already seen as a result of the bill has picked up dramatically," said Nick Schutte who serves with the markets division at Glenrand MIB, a brokers company.

While the bill makes special provisions for company executives and determines the size of their remuneration package and levels of responsibility, it also stresses that executives could be held directly responsible for any breaches. As such, shareholders, employees and other parties are covered by the law.

Demand has already been felt for company reimbursement insurance cover. Also, more executives are rethinking their level of participation because of the higher risks they are exposed to and seeking out liability insurance coverage.

Said Schutte about the bill: "It may also cause litigation to increase and could cause directors to put more pressure on companies to take out insurance on their behalf. Boards are concerned about the risk their directors and officers face in the changing scenario."

Analysts say that this is the time for companies to review their risk management policies and train directors in their duties in order to lower the chances of being sued under the new Companies Bill.