Using Corporate Governance to Reduce Insurance Premiums

With legislation such as the Corruption of Foreign Public Officials Act, the Foreign Corrupt Practices Act, Sarbanes-Oxley and the UK Bribery Act being aggressively enforced, many companies are seeking to implement a strong corporate governance plan in order to avoid the damage to their reputation, share price, and the associated litigation costs that high profile actions against them will cause.

But aside from the above, a strong corporate governance regime may help lower liability insurance premiums. In his paper ‘The Directors’ and Officers’ Insurance Premium: An Outside Assessment Of The Quality Of Corporate Governance’  John E Core citing Knepper and Bailey (1993) said that Directors & Officers liability insurers evaluate the quality of a firms management, and firms with higher quality management are hypothesized to have lower litigation risk.

JE Core himself found evidence that weak corporate governance leads to more litigation, a loss of shareholder confidence and higher D & O premiums.

The professionals at the KeyNorth Group can provide consultation services to identify and mitigate the fraud risks faced by your company. Contact us for further details.