Global Liberalization clause in D&O policies

 

A liberalization clause is a clause that, at no additional cost or premium, automatically applies any favourable modifications to the policy wording to the insured at any time throughout the policy term. Although they are more frequently found in property insurance wordings, this kind of clause is now being increasingly used in liability insurance plans.

Many insurers have different policy wordings to suit the particular client requirements. The variance in policy wordings might be with regard to lower percentage of deductibles, coverage’s in terms of extension, viz., lower percentage of major shareholding exclusion, higher level of auto inclusion of new subsidiaries, etc.,. Higher level of customization of wordings will normally follow higher limits of indemnity. Though higher customization normally entails higher costs, it need not necessarily result so in all cases.     

The liberalization clause is advantageous to both the insured and the insurance companies. The insured gets to benefit from any changes in the policy wording during the term of the policy while the insurance company can save on expenses of notifying policyholders of changes in policy wordings.

In this blog we will cover the global liberalization clause in D&O policies which allows for extension of the coverage terms and conditions to be automatically updated to the benefit of the insured, based on changes in laws or regulations in different jurisdictions where the policy operates. 

How does the global liberalization clause work in D&O policies?

Automatic adjustment: If laws, regulations, or insurance requirements change in any jurisdiction covered by the policy, the policy terms will automatically adjust to provide broader or more favourable coverage to the insured directors and officers.

Adaptability for different jurisdictions: This clause is particularly useful for companies operating in multiple countries, ensuring that their D&O policy remains compliant and provides the necessary coverage without the need for frequent manual updates.

Broader coverage: If a country introduces more favorable coverage provisions than those initially in the policy, the global liberalization clause ensures that these provisions are automatically included, offering the insured better protection.

No reduction in coverage: The clause typically ensures that coverage is never reduced by changes in law; it only improves or broadens coverage.

Regulatory compliance: It helps in maintaining compliance with varying regulatory requirements across different regions without needing constant manual adjustments to the policy.

The inclusion of this clause provides peace of mind to multinational corporations, ensuring that their directors and officers have the most favorable coverage available, regardless of changes in local insurance laws. However the wider coverage need not be useful in all cases and hence there is need to evaluate its utility on the basis of cost versus benefit analysis 

It is best to consult an insurance broker to seek clarification on the implications of the global liberalization clause in the D&O insurance policy.

We at Zen Insurance Brokers assist in choosing an insurance policy with clauses suited to your requirements. Choose your insurance policy wisely. Get in touch with us for any assistance.

 

Disclaimer:

Zen Insurance Brokers is an IRDAI registered broker which facilitates quick and adequate insurance broking services. We deal with only regulator approved products of insurers. We do not underwrite the products.