Financial Institutions: What Covers Do I Need?

Financial Institutions operate within an extremely fast-paced and competitive environment and are heavily scrutinised under the robust rules of regulators in the UK. Subsequently, firms such as Banks, Venture Capitalists, Investments Managers & Corporate Service Providers have an increased number of risk exposures that require mitigation through the method of insurance. This begs the question as to what key covers does a Financial Institution require in the modern world of commerce??

I have written a small article that navigates the key exposures and the covers required for Financial Institutions along with a few case studies to help illustrate the modern exposures a firm in the sector has.?

What Are The Key Covers For A Financial Institution??

Financial Institutions Professional Indemnity (Civil Liability)??

Professional Indemnity protects Financial Institutions in the event of Negligence, Errors & Omissions, Negligence Breach of Duty, and more about the professional services & advice they provide and covers defence costs along with damages/awards.?

Directors & Officers (D&O)?

Similarly, to Professional Indemnity, D&O will cover negligence, errors, omissions, or breach of duty but in contrast, it is not concerning professional services but with respect to other aspects of the business such as regulatory issues, shareholder action, reporting errors, or inadequate disclosures. It is also different as the target of the claim is against the individual Directors and Officers rather than the entity itself?

Crime??

Crime cover protects against any employee theft or infidelity such as physical loss of property or the theft of funds through forgery or falsification of documentation. In some cases, Crime Insurance can provide protection in the event of fraud perpetrated by third parties. Where Financial Institutions place trust in their employees with their assets, this is an essential cover for any firms within the FI sector.?

Employment Practices Liability (EPL)?

EPL provides cover in respect of employment claims and more specific issues such as unfair dismissal or discrimination (racial, sexual, gender, age, etc). This has become a major exposure for Financial Institutions in recent years due to the development of equality and employment legislation in the UK.??

Cyber Insurance?

Cyber Insurance ensures that the firm is protected against modern 1st party and 3rd party cyber exposures which are inevitable in the current digital world. Data Breaches, Ransomware, Malware, Funds Transfer Fraud, and the respective remedial work, regulatory remedies, and claims against the insured are covered under a cyber policy?

Public Liability?

Public Liability insurance assists the insured by providing cover in the event of third-party property damage or injury to third-party persons. This is an essential cover for all businesses in the UK not only Financial Institutions.??

Employers Liability?

A mandatory cover in the UK, Employer’s Liability ensures the insured is covered in the event of injury or illness to an employee in the course of their work. The minimum level of cover required by law s ￡5m, however, you will see a minimum of ￡10m limits available in the market.?

?Case Studies?

A Retail Bank experiences unauthorised access to its computer systems and subsequently, there is a leak of sensitive data on the dark web including Names, Email Addresses, and Phone Numbers. Having Cyber Insurance in place enabled the bank to cover not only the costs of the mandatory notification of the breach to those affected but also over ￡100k in Computer Forensics costs, ￡25k in PR Costs as well as unknown future defence costs and awards for those affected that will look to make a claim?

At a leading UK Based Fund Manager, one of the traders operating on behalf of one of their institutional investors made an error in the placement of a trade where they were looking to reduce the fund's equity exposure in the FTSE 250 UCITS ETF. Instead of selling the ETF, the trader purchased more. Realising this too late, the trader looked to reverse the trade upon the opening of the market the next day where the price dropped dramatically before the resale leading to a loss of ￡500k. As the client has an FI PI policy in place, claims against the Fund Manager were covered under the negligence section of the policy.?

A claim was made against an Investment Manager concerning gender discrimination. Allegations were made in respect of two female employees being renumerated at a lower level than male employees in the same role and the failure to promote female staff in the organisation. The claimants won the case, however, the insured carried EPL coverage which allowed them to cover the costs and the awards involved in the claim.?

Summary?

Whilst I have listed some of the key covers a Financial Institution needs to carry as part of their portfolio, the list is not exhaustive and there is plenty of other exposure that a firm would need to consider such as Property, Pension Trustee Liability, Business Interruption & Credit Risk insurance. However, the above would provide a solid foundation for any Financial institution or a start-up looking to ensure they have a robust insurance programme.?

Should you require a bespoke policy programme for your Financial Institution clients, please get in touch with the team or me to assist with your needs.?

[email protected]?

020 3086 3686?