There are emerging and developing exposures faced by Financial Institutions, for which most domestic markets are unable to offer terms – senior management and professional liability risks being two key areas. London underwriters are, however, stepping up and offering well thought out coverages in some of these tougher areas of business.
Miller is working with select specialist London market insurers to provide cover for these more difficult to place financial lines risks, including crypto currencies and Fintech. This is delivering a service and creating a market for North American intermediaries where it is most needed. Alongside this the market continues to have strong appetite for traditional lines, such as investment managers and venture capital risks. In this short article we outline some of the developments and options available to solve difficult issues.
Broker dealers in North America have been under increased regulatory scrutiny of late in a number of jurisdictions. For example, analysis of claims by Lloyd’s Pioneer Underwriters * shows that the largest cause of claims over the past four years has been regulatory investigations (20% of claims). This has resulted in a spike in claims for insurers, prompting a number of underwriters to withdraw or pull back from the market.
Miller has been working to create new capacity and options for our North American intermediary clients looking to place broker dealer risks in London. We recently partnered with a London market managing general agent (MGA) that specialises in financial lines, with particular expertise and appetite for broker dealer risks.
The resulting new Miller broker dealer solution provides E&O and D&O cover backed by ‘A’ rated paper. The policy is drafted using specific broker dealer wordings, updated to reflect recent changes in regulation and the evolving risks of cyber/fraud. We make further observations on this sector further into this narrative.
Crypto currency and other innovations
Innovation is happening at breakneck speed in financial services, but this is creating challenges for liability insurance. For example, we have seen a noticeable increase in brokers looking to place risks with crypto currency and blockchain exposures, an emerging area in terms of regulation and potential for litigation.
Insurers have been cautious of firms with crypto currency exposures, however, there are a small number of specialist insurers that are prepared to consider US domiciled crypto currency and blockchain risks. One Lloyd’s underwriter, for example, offers basic forms of D&O cover, albeit with exclusions, providing such firms with much needed cover to attract investors and employees.
There is also growing recognition among more enlightened insurers that crypto currency or blockchain risks are not all the same. While some crypto currency risks cannot be placed – such as Initial Coin Offerings (ICO) – we are finding there are more options on the table.
For example, ‘drop down’ ICO coverage is available in the US domestic excess market, sitting on top of the primary D&O placed in London and filling in the gap in coverage not provided by the underlying policy. On the whole, terms and choice for clients in this sector have improved and the market is now more competitive than it was at the start of the year. This is particularly true for non-US domiciled crypto currency involved risks.
Professional, executive & financial risks
There have also been developments in the Fintech market where gaps and overlaps exist between D&O, E&O, Crime and Cyber coverages. Some insurers in London are now offering packaged cover for Fintech firms outside the US, while Miller is working hard to bring these solutions to US domiciled companies.
Cyber is a growing risk for financial institutions, but is still not widely purchased by financial institutions such broker dealers and asset managers. This is despite warnings by regulators and a number of publicised cyber attacks – the Securities and Exchange Commission recently fined investment manager Voya Financial Advisors USD1 million following a cyber attack that compromised the personal details of some 5,000 customers.
In particular, social engineering and fraud is a big risk for this sector. While there is a degree of social engineering related fraud cover under certain FI crime policies, this can be a genuine grey area for clients and brokers alike. We therefore recommend the addition of a social engineering extension, for the avoidance of doubt and peace of mind. After all, there is a reason why liability cover is also known as ‘sleep at night insurance’.
Miller's Cyber capabilities
Re-engage on cyber
The financial sector now relies upon technology, often involving sensitive information and high value transactions. It is therefore our duty as insurance brokers to manage the transfer of this risk for our clients.
There are a number of excellent, well priced Cyber solutions readily available for all types of Financial Institutions across the market, however the uptake of this type of coverage is relatively low considering the degree of risk to which these companies are exposed.
We actively encourage our intermediaries to re-open conversations regarding Cyber coverage with their FI clients. Whether a combined option or a standalone policy. As always, we stand ready to help, advise and facilitate on this type of coverage.