Public Offering of Securities Insurance (POSI) for Indian IPOs: Why D&O Alone Leaves the Prospectus Exposed

A board approaching its first public offering usually has a D&O policy and a belief that it covers the IPO. The belief is half right, and the half that is wrong is expensive.

POSI, Public Offering of Securities Insurance, is a distinct transactional cover designed for one exposure: liability arising from misstatements or omissions in an offering prospectus. It protects the company, its directors and officers, and others involved in a securities offering against claims that the document used to raise capital was misleading or incomplete. It is sold in India by insurers including Tata AIG.

The reason POSI exists as a separate product, rather than a rider on D&O, is that a public offering creates a concentrated, time-bounded, document-specific liability that a standard D&O policy is not built to carry. The prospectus is a single document, scrutinised by investors and regulators, and any claim that it misstated or omitted material information can pull in parties and exposures a D&O policy was never priced for.

The practical message for an Indian board is to stop treating the IPO as just another year of D&O cover. The offering is a discrete event with its own liability profile, its own claimant set, and its own multi-year tail, and POSI is the cover purpose-built to ring-fence that exposure away from the ongoing D&O programme.

Prospectus liability in India is not an abstract risk. It is anchored in specific provisions of the Companies Act, 2013, layered with SEBI's disclosure regime, and that statutory base is what POSI responds to.

Three sections of the Companies Act do the heavy lifting.

• Section 34 imposes criminal liability for misstatements in a prospectus. Where a prospectus includes a statement that is untrue or misleading, or omits a matter likely to mislead, persons responsible can face criminal consequences.
• Section 35 imposes civil liability for misstatements in a prospectus, giving investors who subscribed on the faith of the prospectus a route to compensation for loss or damage sustained by reason of an untrue statement.
• Section 36 addresses fraudulently inducing persons to invest money, capturing the deliberate use of misleading statements to induce investment.

Layered on top is SEBI's prospectus disclosure regime, which governs what must be disclosed and how, and exposure to regulatory action where the offer document falls short.

The combined effect is that directors and officers, and the company itself, carry real personal and corporate exposure tied to the accuracy and completeness of the offer document. This is the exposure POSI is designed to meet. Because the liability flows from a specific document and a specific statutory framework, it is sharply defined, which is exactly why a dedicated cover, rather than a stretched D&O policy, fits it best.

The case for POSI is clearest when you set its scope against the gaps in a standard D&O policy.

The claimant set is wider

A standard D&O policy does not usually cover underwriters or selling shareholders. An IPO, however, can generate claims that touch both. Selling shareholders who offload stock in the offering and the underwriters who place it can be exposed to prospectus-related claims, and a D&O policy built to protect the company's own directors and officers is not designed to respond for them. POSI is structured to bring these additional parties within the cover, closing a gap that D&O leaves open.

The claim type is addressed head-on

A standard D&O policy does not address prospectus-related claims as fully as POSI. D&O is a broad management-liability cover; POSI is a focused prospectus-liability cover. For the specific risk of a misstatement or omission in the offer document, the dedicated product is built around that exposure rather than treating it as one possibility among many.

The limit problem

This is the structural argument that often decides the question. Extending a D&O policy to cover IPO claims erodes the limit available for other D&O claims. A single offering-related claim could consume a large share of the D&O limit, leaving the directors under-protected for the ordinary management-liability claims the policy is meant to cover for the rest of the year and beyond.

POSI is not annual cover, and the reason is the shape of prospectus liability over time.

Claims arising from a prospectus do not all surface in the year of the offering. An investor's loss may take time to crystallise, litigation can follow well after listing, and the statutory exposure under the Companies Act does not expire when the IPO closes. The liability has a tail, and a one-year policy would leave that tail uncovered.

To match it, POSI is typically structured as a multi-year policy, with the period of cover commonly ranging from about three to six years to align with the prospectus liability tail. The single premium and fixed term reflect the transactional nature of the cover: it attaches to one event, the offering, and stays in force across the years over which claims from that event can realistically arise.

This transactional, multi-year design has practical consequences for how a board buys it. The cover is arranged around the offering rather than renewed annually, the limit is dedicated to the offering exposure, and the term is set to outlast the period in which prospectus claims are likely. A board that buys POSI is buying certainty over the offering's full liability horizon, not a single year of protection that lapses while the exposure is still live.

The contrast with D&O sharpens the point. D&O is renewed each year and shared across all management-liability claims; POSI is bought once for the offering, ring-fenced to the prospectus exposure, and held for the years that exposure runs. The two are complementary, not interchangeable, which is the heart of the case for treating the IPO as warranting its own cover.

For a broker advising an IPO-bound company, POSI is a structuring exercise as much as a placement.

The core decisions are these. First, confirm the exposure: map the offering against Sections 34, 35 and 36 of the Companies Act, 2013 and the SEBI disclosure regime, so the board understands the civil and criminal prospectus liability it carries. Second, define the insured group: the company, directors and officers, and, where relevant, underwriters and selling shareholders who fall outside the D&O cover. Third, fix the limit independently of the D&O programme, so an offering claim does not erode the limit directors rely on for ordinary management-liability claims. Fourth, set the multi-year term, commonly around three to six years, to match the prospectus liability tail rather than a single policy year.

The failure mode to guard against is the default assumption that D&O will absorb the IPO. It can be extended to do so, but at the cost of eroding the limit and without cleanly covering underwriters and selling shareholders, which is precisely the gap POSI fills.

Getting the interaction between the D&O and POSI wordings right, how they dovetail, where each responds, and how the limits sit relative to one another, is wording work, not generality. Sarvada gives commercial insurance brokers structured, searchable access to insurer policy wordings and the intelligence around them, so a POSI placement and its fit with the existing D&O programme are built on the actual wordings in play. Request Access to structure your next IPO cover from the wordings up.