As published in Insurance Journal
Asset managers and depository institutions have a wide variety of organizational structures and a myriad of exposures, making it challenging for independent agents to design coverage plans that effectively address their evolving risks. Often, the best approach is to work with a few insurers that offer broader, more flexible coverage options, streamlining the approach for the agent and the customer.
Unique and complex exposures facing financial institutions
The following are some key risks financial institutions face as a result of their unique business activities:
- Consumer lending: Mortgages and vehicles, coupled with repossession or foreclosure risks, create errors and omissions exposures and risks of impartment of collateral
- Commercial and alternative lending: Concentration of assets in classes not always familiar to a financial institution can add exposure to litigation and large charge-offs, potentially impairing balance sheets
- Consumer legislation: Resulting litigation can pose financial and reputational risks, and exposure to potential action by regulatory bodies
- Possession of personally identifiable information: The more personally identifiable information held by an organization, the higher the risk of loss resulting from a breach
- Movement of funds via transfer: Electronic funds transfers and newer and innovative electronic payment methods, may expose an organization to loss of funds, litigation and difficult customer relations regarding responsibility and security of funds
In addition, a financial institution’s structure and location can pose a risk to stability and longevity. Public, private, mutual, pink sheet, over-the-counter and nonprofit structures can be formed as state or federal charters, impacting regulatory and legal exposures. Filing structures differ between formations, as well, creating different reporting requirements, and the location of an organization effects the requirements, laws and regulations that must be followed.
Challenges of splitting between carriers
While many agents would prefer to place a financial institution’s policies with a single carrier, the insurance market is not always conducive to doing so. When an organization’s policies are split between carriers, however, it can expose the organization, its leadership and the insurance agent to risks.
When most carriers develop policies, they are created to be internally consistent. However, using multiple carriers can cause challenges, with some using proprietary forms and others using commercial forms with proprietary endorsements. Using multiple carriers can result in inconsistent policy language and coverage intent. Unfortunately, sometimes it takes a claim to highlight gaps in coverage.
We commonly see property and casualty coverage separated from other coverages, and sometimes lender-placed programs are used. An event could trigger coverage in more than one coverage part and policy. Add to that, when the policies are split between carriers, it can lead to unintended gaps in coverage and complex negotiations between carriers.
Similarly, there are notice concerns related to claims generated by direct causes of loss that then lead to lawsuits, triggering coverage under bond and executive liability policies. Finally, policyholders may have multiple carriers adjusting claims, indemnifying and or defending portions of one loss.
Finding the right carriers
Not all carrier partners are the same. It is difficult for agents to “stitch together” an insurance program using policies from a number of carriers. The challenge includes coordinating between markets, securing correct and complete application answers, analyzing endorsements and coverages, and perhaps most importantly, fully mastering what is covered under which policy and with which carriers.
The key is in selecting the right carrier partners. Carriers with both standard and specialized solutions can offer broader, more cohesive protection for clients. This helps reduce coverage gaps for customers and allows agents to become familiar with the forms, understand program nuances and build books of business that create deeper relationships and stronger marketing alliances.
The Hanover has built a coordinated offering for its agent partners with an appetite and policy language that aligns well between standard and specialty coverages. This offers agents the ability to write the broad range of customers’ exposures with a single carrier, helping to reduce coverage gaps and provide a more seamless client experience. By partnering with the right carriers, independent agents can help build cohesive coverage plans that best protect their financial institution clients and bring true value to their customers.
About the author
Helen Ryan Saviano is The Hanover’s president of management liability. With more than 25 years of industry experience, she is a proven leader with expertise in organic, ground-up business development, resulting in profitable returns on investment and revenue growth.