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Winter 2010
The Importance of Extended D&O Reporting
By Pat Corey, Independent Bankers Insurance Services, Inc.
I obviously don't need to waste print space with a dissertation about the current state of the
community banking industry as a preface to this article. However, I do want to update you on the
issues we are facing in regards to insurance policy renewals. Our agency manages the insurance
portfolios of approximately 150 community banks and at least half of our client base is
experiencing some form of financial difficulty or are working under regulatory orders. Both
conditions jeopardize continuous insurance coverage and could lead to mid-term cancellation
from certain insurance carriers or eventual non-renewal when the policies expire. Both situations
require immediate attention as soon as notice of non-renewal or cancellation is received by the
bank.
Professional lines (Financial Institution Bond and Directors and Officers Liability Policies)
underwriting is becoming increasingly restrictive due to a significant increase in claims activity.
When a bank lends a dollar it risks a dollar. When a professional lines insurance underwriter
accepts a premium dollar the risk can easily exceed 50 dollars – making the task of underwriting
insurance profoundly more critical than the exposure inherent in lending money. In addition,
insurance rates are subject to state filings and have little room for adjustment to meet changes in
risk. The long-term “soft” insurance market that just ended drove professional lines insurance
rates to unprecedented low levels that were not adequate to pay the skyrocketing claims the
industry is now absorbing. We will undoubtedly see markedly increased premiums for Bond and
D&O policies as rate filings are adjusted to account for these losses.
Because the insurance industry has limited avenues to protect itself, it is important for you to
know that most Financial Institution Bonds are cancellable by the insurance carrier if there is a
material change in risk during the policy term. Cancellation by the insurance carrier is subject to
state regulations requiring advance notice (usually 60 days) so the subject of the cancellation will
have sufficient time to seek replacement coverage. The same conditions apply to D&O policies if
the policy contains a mid-term cancellation provision or has an endorsement allowing this
coverage modification. Most insurance policies do not have mid-term cancellation clauses and
guarantee D&O coverage for the entire term originally offered – even if the bank fails during the
policy term. All carriers reserve the right to non-renew when the bank is no longer an acceptable
renewal risk, but the carriers are still required to send a notice of non-renewal to the bank to give
the bank ample time to seek alternatives.
The insurance markets available to write Directors and Officers Liability Insurance for community
banks typically are not willing to cover prior acts in the current economic environment. It is
important that you acknowledge this change in market conditions before sending your broker or
insurance administrator on a quest to find replacement coverage for your organization.
If your bank is put on notice for non-renewal or cancellation, we strongly urge the bank exercise
its right to purchase an “Extended Reporting Period” (tail of coverage) on the D&O policy.
Directors and Officers Liability Insurance Policies are “claims-made” insuring instruments, which
means the claim must be “made” (reported to the insurance carrier) during the policy term. The
“Extended Reporting Period” gives the bank the right to report claims for alleged wrongful acts
that occurred before the effective date of cancellation or non-renewal for an additional period of
time (usually one year) after the policy expired, was cancelled, or non-renewed by the insurance
carrier. When you exercise the Extended Reporting Period you are essentially purchasing limited
“past acts” coverage on your non-renewing D&O policy which mitigates the gap created when you
switch insurance carriers.
Exercising the Extended Reporting Period is critically important because: 1.) it is highly unlikely
you will receive “past acts” coverage through your successive insurance carrier; and 2.) the
Extended Reporting Period retains the terms and conditions of the non-renewing policy, which is
very important. You will likely receive restricted coverage on the successive carrier’s terms if your
bank was non-renewed because it is experiencing financial or regulatory difficulties. The
conditions pertaining to the purchase of extended reporting are outlined in your current D&O
policy language – usually including the amount of premium required – 75% to 250% of the
previous year’s D&O premium depending upon your current carrier’s policy terms.
Protecting Yourself Against Medical ID Theft Risks
By Robert Uribe, Bison Mountain Financial, Inc.
A new study released by Javelin Strategy and Research last week revealed that identity theft
cases jumped 12% in 2009. While the study also shows that victims are also becoming more
vigilant at watching their credit reports and financial accounts, there is a hole in their detection
strategy.
Medical identity theft is one of the faster growing categories of identity theft. It occurs when a
person uses a false identity to obtain medical treatment, prescription drugs or access to health
insurance benefits.
Any medical care provided to someone using your name can cause incorrect data to become a
part of your medical history. This data can lead to a misdiagnosis for you in the future and,
consequently, improper treatment. Further injury, delayed recovery or even death may result.
The same vigilance that has led to a reduced severity in financial identity theft crimes needs to be
employed on the medical ID theft front. There are some keys things people can do to detect
medical ID theft.
read more...
The Importance of Extended D&O Reporting
By Pat Corey, Independent Bankers Insurance Services, Inc.
I obviously don't need to waste print space with a dissertation about the current state of the
community banking industry as a preface to this article. However, I do want to update you on the
issues we are facing in regards to insurance policy renewals. Our agency manages the insurance
portfolios of approximately 150 community banks and at least half of our client base is
experiencing some form of financial difficulty or are working under regulatory orders. Both
conditions jeopardize continuous insurance coverage and could lead to mid-term cancellation
from certain insurance carriers or eventual non-renewal when the policies expire. Both situations
require immediate attention as soon as notice of non-renewal or cancellation is received by the
bank.
Professional lines (Financial Institution Bond and Directors and Officers Liability Policies)
underwriting is becoming increasingly restrictive due to a significant increase in claims activity.
When a bank lends a dollar it risks a dollar. When a professional lines insurance underwriter
accepts a premium dollar the risk can easily exceed 50 dollars – making the task of underwriting
insurance profoundly more critical than the exposure inherent in lending money. In addition,
insurance rates are subject to state filings and have little room for adjustment to meet changes in
risk. The long-term “soft” insurance market that just ended drove professional lines insurance
rates to unprecedented low levels that were not adequate to pay the skyrocketing claims the
industry is now absorbing. We will undoubtedly see markedly increased premiums for Bond and
D&O policies as rate filings are adjusted to account for these losses.
Because the insurance industry has limited avenues to protect itself, it is important for you to
know that most Financial Institution Bonds are cancellable by the insurance carrier if there is a
material change in risk during the policy term. Cancellation by the insurance carrier is subject to
state regulations requiring advance notice (usually 60 days) so the subject of the cancellation will
have sufficient time to seek replacement coverage. The same conditions apply to D&O policies if
the policy contains a mid-term cancellation provision or has an endorsement allowing this
coverage modification. Most insurance policies do not have mid-term cancellation clauses and
guarantee D&O coverage for the entire term originally offered – even if the bank fails during the
policy term. All carriers reserve the right to non-renew when the bank is no longer an acceptable
renewal risk, but the carriers are still required to send a notice of non-renewal to the bank to give
the bank ample time to seek alternatives.
The insurance markets available to write Directors and Officers Liability Insurance for community
banks typically are not willing to cover prior acts in the current economic environment. It is
important that you acknowledge this change in market conditions before sending your broker or
insurance administrator on a quest to find replacement coverage for your organization.
If your bank is put on notice for non-renewal or cancellation, we strongly urge the bank exercise
its right to purchase an “Extended Reporting Period” (tail of coverage) on the D&O policy.
Directors and Officers Liability Insurance Policies are “claims-made” insuring instruments, which
means the claim must be “made” (reported to the insurance carrier) during the policy term. The
“Extended Reporting Period” gives the bank the right to report claims for alleged wrongful acts
that occurred before the effective date of cancellation or non-renewal for an additional period of
time (usually one year) after the policy expired, was cancelled, or non-renewed by the insurance
carrier. When you exercise the Extended Reporting Period you are essentially purchasing limited
“past acts” coverage on your non-renewing D&O policy which mitigates the gap created when you
switch insurance carriers.
Exercising the Extended Reporting Period is critically important because: 1.) it is highly unlikely
you will receive “past acts” coverage through your successive insurance carrier; and 2.) the
Extended Reporting Period retains the terms and conditions of the non-renewing policy, which is
very important. You will likely receive restricted coverage on the successive carrier’s terms if your
bank was non-renewed because it is experiencing financial or regulatory difficulties. The
conditions pertaining to the purchase of extended reporting are outlined in your current D&O
policy language – usually including the amount of premium required – 75% to 250% of the
previous year’s D&O premium depending upon your current carrier’s policy terms.
Protecting Yourself Against Medical ID Theft Risks
By Robert Uribe, Bison Mountain Financial, Inc.
A new study released by Javelin Strategy and Research last week revealed that identity theft
cases jumped 12% in 2009. While the study also shows that victims are also becoming more
vigilant at watching their credit reports and financial accounts, there is a hole in their detection
strategy.
Medical identity theft is one of the faster growing categories of identity theft. It occurs when a
person uses a false identity to obtain medical treatment, prescription drugs or access to health
insurance benefits.
Any medical care provided to someone using your name can cause incorrect data to become a
part of your medical history. This data can lead to a misdiagnosis for you in the future and,
consequently, improper treatment. Further injury, delayed recovery or even death may result.
The same vigilance that has led to a reduced severity in financial identity theft crimes needs to be
employed on the medical ID theft front. There are some keys things people can do to detect
medical ID theft.
read more...
| Copyright 2010, Bison Mountain Financial, Inc. |
