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LigaAsuransi > Blog > General Insurance > Liability Insurance > Asuransi Director & Officer > Why Do Companies in Indonesia Must Have Directors and Officers (D&O) Insurance?
Asuransi Director & Officer

Why Do Companies in Indonesia Must Have Directors and Officers (D&O) Insurance?

Mhd. Taufik Arifin ANZIIF (Snr. Assoc) CIIB
By Mhd. Taufik Arifin ANZIIF (Snr. Assoc) CIIB
Published Sunday March 23rd, 2025
368 Views
7 Min Read
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Table of Content
Risks Facing Directors and Executive Officers Rules and Regulations in Indonesia regarding D&O Insurance Legal Cases and SanctionsCases That Prove the Importance of D&O Insurance Risks Facing Directors and Executive Officers Benefits of Having D&O Insurance 

Liga Asuransi – Greetings to CEOs, Directors, Officers and Legal Professionals in Indonesia!

How are you? We hope your business runs smoothly and is successful. Welcome to our blog, which always provides in-depth discussions about risk management and insurance. We are committed to providing the best insights for business leaders, legal teams and legal consultants.

If you found this article useful, share it with your colleagues. Don’t forget, there are hundreds of other interesting articles that you can access on this blog. Happy reading and stay protected! 🚀

Directors and Officers (D&O) Insurance is an insurance policy that provides protection for directors and executive officers against legal claims that may arise as a result of their business decisions or actions in running the company. This policy protects individuals against claims from shareholders, employees, regulators, or third parties alleging managerial errors, negligence, or unlawful acts.

In Indonesia, more and more companies are realizing the importance of D&O Insurance because of the high risks faced by company leaders. With increasing regulation and business transparency, lawsuits against directors can have a major impact on a company’s financial stability and executive reputation. No protection D&O Insurance, executive officers could face significant financial burdens due to legal fees and compensation for claims filed.

 

Risks Facing Directors and Executive Officers 

Directors and executive officers face various risks in carrying out their duties, both from a legal, financial and reputational perspective:

  • Legal Risk
  1. Lawsuits from shareholders resulting from detrimental business decisions.
  2. Claims from employees regarding layoffs, discrimination, or work ethics violations.
  3. Investigations from regulators such as the Financial Services Authority (OJK) or the Corruption Eradication Commission (KPK).

 

  • Financial Risk
  1. High legal costs in facing charges.
  2. Obligation to pay large amounts of compensation if found guilty.
  3. Financial impact due to litigation that can threaten the company’s cash flow.

 

  • Reputational Risk
  1. Negative news that can reduce public trust.
  2. Loss of support from investors and business partners.
  3. Impact on career individuals involved in legal cases.

D&O Insurance plays an important role in protecting executive officers from these risks, enabling them to make business decisions with more confidence without fear of potential lawsuits.

 

Rules and Regulations in Indonesia regarding D&O Insurance 

In Indonesia, various regulations regulate the responsibilities of directors and commissioners, so D&O Insurance becomes an important requirement for companies. Some of the main regulations include:

  • Law no. 40 of 2007 concerning Limited Liability Companies

Article 97 stipulates that directors are fully responsible for the management of the company and can be sued by shareholders or third parties if they are proven to have committed negligence or actions that are detrimental to the company.

  • Financial Services Authority (OJK) Regulations

OJK regulations regarding corporate governance (Good Corporate Governance) require transparency and accountability in company management.

D&O Insurance is often a requirement for public companies and companies wishing to conduct an IPO (Initial Public Offering).

 

Legal Cases and Sanctions

Directors who are proven to have committed violations can be subject to fines, administrative sanctions, and even criminal penalties.

A lack of insurance coverage can have major financial impacts for individuals and companies.

With an increasingly complex business environment, having D&O Insurance helps companies comply with regulations and provides protection for their executives.

 

Cases That Prove the Importance of D&O Insurance 

The following cases show how D&O Insurance can be a lifesaver for company directors and executives:

Case in Indonesia

  • Jiwasraya case

The former Jiwasraya directors were sued for alleged fraud and investment mismanagement which caused huge losses for the company and policyholders.

Without D&O Insurance coverage, they would have to cover huge legal costs themselves.

  • Century Bank Case

The Century Bank bailout case involved several high-ranking officials who ultimately faced legal action over policies taken during the crisis.

 

Cases Abroad

  • Enron Case (United States)

The largest accounting scandal in history led to Enron’s bankruptcy and lawsuits against the company’s directors.

Directors who have D&O Insurance can use the policy to fund their legal defense.

  • Volkswagen Dieselgate Case (Germany)

Lawsuit against Volkswagen executives stemming from diesel emissions scandal resulting in billions of dollars in fines.

Companies with D&O Insurance can mitigate financial risks resulting from lawsuits.

These cases demonstrate that without D&O Insurance coverage, executive officers can face enormous legal and financial consequences.

 

Risks Facing Directors and Executive Officers 

Directors and executive officers have a crucial role in managing a company, but they also face a variety of risks that can have a major impact on their careers, finances and reputation. These risks include legal, financial and reputational aspects, all of which can threaten personal and company stability.

  • Legal Risk

Directors and executive officers are often the targets of lawsuits that can come from a variety of parties:

  1. Lawsuits from Shareholders: If shareholders feel that a policy or business decision is detrimental to the company, they can file a lawsuit against the directors on the basis of breach of fiduciary duty.
  2. Claims from Employees: Claims related to mismanagement, discrimination, workplace harassment, unfair termination of employment, or violations of labor rights can drag directors into legal proceedings.
  3. Lawsuits from Regulators and Government: Violations of tax regulations, the environment, or compliance with business regulations may result in legal action from authorities such as the Financial Services Authority (OJK), Ministry of Finance, or Ministry of the Environment.
  • Financial Risk

Legal risks often lead to severe financial consequences, including:

  1. Legal and investigative costs: Attorney fees, forensic investigations, and court fees can be substantial, even reaching millions of dollars.
  2. Large compensation claims: If directors are found to be at fault, they may be required to pay compensation to the injured party.
  3. Losses due to business decisions: Inappropriate decisions, such as failed investments or strategic errors, can cause huge losses to a company.
  1. Reputation Risk
  1. Negative impact of scandals or litigation: Negative coverage can damage an executive’s personal image and reduce public trust in the company.
  2. Losing the trust of investors and business partners: Investors and business partners will think twice about collaborating with companies whose directors are involved in legal cases.

Because of these risks, Directors and Officers (D&O) Insurance is an important solution to protect executives and ensure company sustainability.

 

Benefits of Having D&O Insurance 

In an increasingly complex business world, Directors and Officers (D&O) Insurance has become an essential need for companies. This protection provides many benefits, both for individuals who serve as directors and executive officers and for the company as a whole.

  1. Protection against Legal Claims

Directors and executives are often the target of lawsuits due to the business decisions they make. D&O Insurance protects them from:

  1. Legal costs, investigations and claim settlements, which can reach billions of rupiah.
  2. Provide financial protection so they can defend themselves without having to sacrifice personal assets.
  1. Maintain the Company’s Financial Stability

Without D&O Insurance, the costs of lawsuits can burden a company significantly. This insurance helps:

  1. Reduce financial risks due to demands from shareholders, regulators or third parties.
  2. Ensure business operations continue to run smoothly, even if the company faces legal disputes.
  1. Increase Credibility and Attractiveness to Investors

Investors and business partners have more confidence in companies that have good governance, including protection for directors. D&O Insurance:

  1. Increase shareholder confidence.
  2. It becomes added value when the company wants to get funding or conduct an IPO.
  1. Attract and Retain the Best Executive Talent

Executives are more comfortable working for companies that provide them with legal protection.

D&O Insurance is part of the incentives and compensation package for directors and commissioners.

With these various benefits, companies in Indonesia must make D&O Insurance part of their risk management strategy to maintain business continuity and protect their leaders. 🚀

 

Conclusion 

Directors and Officers (D&O) Insurance is important protection for company executives in Indonesia. With increasing lawsuits, stringent regulations and reputational risks, having this insurance helps ensure that directors and executive officers can carry out their duties without fear of personal financial consequences.

Without D&O Insurance protection, companies and their officers risk high litigation costs, large damages, and adverse impacts on business credibility. A number of cases in Indonesia and the world have proven that lawsuits against directors can cause significant harm to a company.

 

With the benefits of legal protection, financial stability, and increased attractiveness for investors and executives, D&O Insurance should be a priority for companies looking to grow and survive in this challenging business era.

 

L&G Insurance Broker: The Best Solution for D&O Insurance

As insurance broker experienced, L&G Insurance Broker offers protection Directors and Officers (D&O) Insurance best for your company’s directors and executives. With increasing legal risks and stringent regulations, L&G ensures you have the appropriate policy, covering litigation, investigation and indemnity costs, so directors can work with peace of mind without personal financial threat.

We work with well-known insurance companies, providing solutions based on your industry needs. Entrust your company’s executive protection to L&G Insurance Brokers. Contact us now and get optimal protection for your business! 🚀

Looking for insurance products? Don’t waste your time and contact us now

HOTLINE L&G 24 JAM: 0811-8507-773 (CALL – WHATSAPP – SMS)

Website: lngrisk.co.id

Email: oktoyar.meli@lngrisk.co.id

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ByMhd. Taufik Arifin ANZIIF (Snr. Assoc) CIIB
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Taufik Arifin has more than 30 years of experience in the insurance brokerage industry. He holds the Australian New Zealand Insurance and Financial Institution (ANZIIF snr.assoc) CIP and Certified Indonesian Insurance Broker (CIIB) certificates. Please follow the author's Instagram to get to know him better: @taufik.arifin.31
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