In brief. D&O insurance is not a one-size product: it changes with the size and structure of the company. A start-up with investors, a company with an established board and a multinational with subsidiaries have different exposures and, therefore, different programmes. The boundary between the mid-market and large risks does not lie in the underlying cover —for that, see what D&O insurance covers— but in the sizing: limits, insurer towers and Side A/B/C structure. Getting that sizing right is what separates a policy that responds from one that falls short. The actual scope is governed by each policy.
Does an SME need D&O insurance, or is it only for large companies?
It is a widespread and mistaken idea that D&O insurance is a matter for listed multinationals. Directors' liability does not depend on the size of the company. Articles 236 to 241 of the Spanish Companies Act (Royal Legislative Decree 1/2010) establish that those who manage a company answer with their personal assets —and that liability can be unlimited— to the company, the shareholders and the creditors for the damage caused in the exercise of their office.
An SME or a start-up also concentrates certain risks with particular intensity. The director of a small company is usually a shareholder as well and, often, the same person who signs off the accounts, negotiates with suppliers and answers to the tax authority. When investors come in, expectations, shareholders' agreements and potential claims between parties appear. And in a tense scenario —an insolvency proceeding, an extension of tax liability— personal exposure materialises regardless of turnover.
Put another way: what changes with size is not the need for protection, but its scale. The SME needs D&O; what it needs is one well calibrated to its reality, not the same programme as a large account.
Do you manage a company with shareholders or investors? Request a review with no obligation and we will analyse your personal exposure as a director.
How D&O changes according to the company profile
No two management bodies are alike, but in practice exposure falls into three broad profiles. Each calls for a different approach.
- SME or start-up with investors. The dominant risk is claims between parties: shareholders against directors, investors who came in during a funding round, breaches of the shareholders' agreement. Here it matters that the policy properly addresses the insured vs insured exclusion and its nuances, and that it keeps pace with funding rounds, where each capital increase changes the risk map.
- Company with an established board of directors. Several people share responsibility for collective decisions. Exposure diversifies —directors, officers with powers, the board secretary— and the programme must cover them all, present and, depending on the wording, past and future. The limit becomes a corporate governance decision.
- Multinational with subsidiaries. The cross-border dimension appears. The usual approach is to structure a master programme at the parent, coordinated with local policies in each country where the group operates, to respect the regulatory and tax requirements of each jurisdiction. Exposure in markets such as the United States —more litigious and with class actions— substantially raises both the recommended limit and the price.
In all three cases, the underlying what it covers is common and we set it out in the guide what D&O insurance covers. What changes is how much, how and with whom that risk is placed in the market.
How does mid-market D&O differ from large-risk D&O?
This is the crux of this article. The insurance market distinguishes, more or less informally, between the mid-market and large risks. The difference does not lie in the nature of the cover, but in how it is underwritten and structured.
In the mid-market, D&O is generally resolved with a more standard programme and a single insurer that takes on the full limit. Underwriting is quick: the company assesses turnover, sector and claims record from a questionnaire and the annual accounts, and issues the policy. The capacity of a single entity is enough for the required limit.
In large risks, the required limit exceeds what a single company will or can assume. A tower of insurers is then built: one company takes the first layer (primary) and others sit above it in excess layers, each responding once the layer below is exhausted. Coordinating that tower —ensuring the terms are consistent across layers, avoiding differences in cover between layers— is technical work for the broker.
Large risks also require access to specialist markets. When national capacity falls short or the risk is complex (US exposure, highly litigious sectors, listed companies), the market of London and Lloyd's is used, with underwriters specialising in directors' liability. And the information required grows: underwriting a large risk may involve presentations to the market, meetings with underwriters and a corporate governance due diligence that is not requested in the mid-market.
Does your programme require more capacity than a single company can offer? Let us discuss your situation: we structure towers and access the London market on your behalf.
Side A, B and C cover, and why limits matter
The structure of a D&O policy is built around three sections —Side A, B and C— that determine who receives the indemnity. We will not repeat here the detail of cover and exclusions, which you will find in what D&O insurance covers; what matters for sizing purposes is to understand what each section is for and how it consumes the limit.
- Side A. Protects the director directly when the company cannot or must not indemnify them: insolvency of the company, insolvency proceedings, or a legal prohibition on reimbursement. It is the purest D&O cover, the one that protects personal assets when the company is no longer there to do so.
- Side B. Reimburses the company for the amounts it has advanced to indemnify or defend its directors, where the law and the by-laws allow it to do so.
- Side C. Covers the company itself against certain claims, typically in relation to securities, relevant above all in listed companies.
The key for large accounts is that the three sections share a single aggregate limit. If a securities claim (Side C) or a reimbursement to the company (Side B) consume much of the limit, little may remain to protect the director (Side A) just when they need it most. That is why it is common to arrange an additional Side A limit (Side A DIC): a layer reserved exclusively for directors, which responds when the common limit is exhausted or the primary policy does not respond. The larger and more exposed the company, the more relevant this dedicated protection becomes.
How to size a D&O limit
There is no standard figure, and be wary of anyone who offers one without having analysed your case. The right limit results from cross-referencing several factors:
- Company size: turnover, balance sheet and number of group companies.
- Sector of activity and its level of regulatory and litigation exposure.
- International exposure, with the presence in the United States carrying particular weight.
- Capital structure: presence of investors, funds, listing or funding rounds.
- Sector claims experience and a history of comparable claims.
- Structure of the management body: board, number of people exposed, subsidiaries.
These factors not only set the limit, but also whether the risk is resolved with a single company or requires a tower, and what weight the additional Side A limit should carry. That is why sizing is not an automatic calculation but a case-by-case analysis that starts from the real exposure of the management body before asking the market for a price. On the factors that specifically influence the premium, you can consult the relevant section in what D&O insurance covers.
Every corporate structure presents a different exposure. We analyse your portfolio and advise you on the limit and structure your case requires.
The role of an independent broker
In a line so sensitive to the detail of the wording and the structure of the programme, the difference between buying a product and designing protection is made by the intermediary. As an independent broker, New Brokers does not represent any insurer: it works under the client's mandate and with access to the whole market, including London and Lloyd's.
This translates into three concrete contributions to sizing a D&O well: analysing the real exposure of the management body before asking for a price; structuring the appropriate programme for each profile —a single company in the mid-market, insurer towers in large risks—; and defending in the event of a claim, when the claim arrives and the policy is put to the test. You can see how D&O fits within a broader corporate programme in our cover areas.
Frequently asked questions
Does an SME need D&O insurance? Yes. Directors' liability is personal and can be unlimited (Articles 236 to 241 of the Spanish Companies Act), regardless of the size of the company. What changes with size is how the policy is sized, not the need to have one.
What D&O limit should a company arrange? It depends on size, sector, international exposure and capital structure; there is no standard figure. The limit is sized case by case, after analysing the real exposure of the management body. The actual scope is also governed by the terms of each policy.
What is Side A cover in a D&O policy? Side A cover protects the director directly when the company cannot or must not indemnify them, for example in the event of insolvency or a legal prohibition on reimbursement. It is usually reinforced with an additional Side A limit reserved exclusively for directors, subject to the terms of each policy.
How does mid-market D&O differ from large-risk D&O? In capacity, underwriting and programme structure. Large risks require towers of several insurers and access to specialist markets (London and Lloyd's); the mid-market is usually resolved with more standard programmes and a single company. The structure depends on each company's profile.
Sources and regulations
- Royal Legislative Decree 1/2010 of 2 July, the Spanish Companies Act, Articles 236 to 241 (directors' liability to the company, shareholders and creditors).
- Law 22/2003 of 9 July, the Spanish Insolvency Act, and Royal Legislative Decree 1/2020 (Consolidated Text of the Insolvency Act) — directors' liability in insolvency proceedings and coverage of the shortfall.
- Market practice in directors' liability — segmentation between the mid-market and large risks, insurer towers and access to the London and Lloyd's market.
- Directorate-General for Insurance and Pension Funds (DGSFP) — supervision of insurers and intermediaries.
New Brokers is an independent insurance broker registered with the DGSFP under code J0140. This content is for guidance only and does not constitute binding advice; cover, limits, guarantees and terms are governed by each policy and company. We work under the client's mandate, with access to the whole market —including Lloyd's— and defence in the event of a claim.
Is your D&O programme well sized for the size and exposure of your company? Request a review of your programme. We compare the market for you.
