Marsh has introduced a new insurance feature for companies going public that offers extra protection during their initial public offering (IPO) process. This addition focuses on helping companies cover the costs of indemnifying investment banks involved in their IPOs—something not usually covered by standard directors and officers (D&O) insurance policies.
When a company decides to go public, it faces many risks. One big challenge is the legal exposure that can come from shareholder lawsuits, especially those linked to errors or omissions in the company’s prospectus. Typically, D&O insurance helps protect the company’s directors and officers from these claims. But investment banks, which create the prospectuses and handle the share sales, don’t get covered. Instead, the company often agrees to protect the banks financially if any lawsuits arise against them. This responsibility can be quite costly.
According to Marsh, investment banks are named in about 20% of IPO-related shareholder lawsuits each year. Almost all lawsuits that claim material misstatements in the registration documents include the banks as defendants. This means companies can end up facing significant financial risks on top of the usual pressures of going public.
To tackle this issue, Marsh worked with insurance providers to develop a special upgrade to traditional D&O policies. This upgrade specifically covers the company’s costs when indemnifying investment banks during an IPO. Andy Matthews, vice president at Marsh, pointed out that these indemnification costs could reach millions, creating serious financial strain for companies making the leap from private to public.
This new coverage option responds directly to the growing demand from companies and helps fill a big gap in IPO-related insurance protection. By offering this solution, Marsh aims to ease some of the financial burdens that come with the complex IPO journey and provide companies with better peace of mind as they enter the public market.