Financial institutions and their employees are safeguarded by bankers' professional liability insurance (BPL) against allegations of misconduct, carelessness, and customer mistakes and omissions. If a plaintiff wins a case or a judgment, the insurance helps to cover the costs. E&O, or errors and omissions insurance, is a type of professional liability insurance specifically tailored to the banking and financial services industry. Real estate, notary, depository, insurance, and brokerage services are fee-based financial services provided by professional financial services providers.

Who is Covered by BPL Insurance?

In professional liability insurance, the term "banker" is too wide. BPL insurance may cover banking agents, tax planners, money managers, estate planners, and others in the financial business. Directors and officers, as well as full-time, part-time, & seasonal employees, might all be covered under this policy. Additionally, BPL may be added to director and officer liability insurance policies. The policy's coverage often includes spouses and domestic partners of the insured.

Professional liability insurance coverage can be customized to meet the specific needs of bankers. If you're in the business of underwriting, syndicating, securitizing, and conducting market transactions, you'll need insurance. Financial institutions are concerned about being held accountable for all of their lending and credit-related operations.

What Banker's Liability Insurance Covers

Bankers' professional liability insurance does not cover it for dishonesty, deliberate breaches of the law, or any other illegal activities. This policy does not cover libel, slander, defamation, and invasion of privacy, nor claims that are still outstanding at the time of insurance underwriting.

Instances and allegations of financial impropriety are covered by BPL insurance. Giving a customer incorrect or misleading advice is one example of an accidental mistake. These include claims of negligence, misrepresentation, or other errors in the bank's deposit, brokerage, insurance, real estate, and credit card services.

In some cases, financial institutions may be able to choose their legal defense team if necessary. The insurance company will handle some instances. Even if the insured declines to accept a settlement offer, the insurance company may only pay trial costs up to a sum equal to the settlement offer.

Is BPL Insurance For Bankers Still Valuable?

During the COVID-19-driven economic instability and tougher insurance market, the value of insurance has come under investigation. Some banks are questioning whether the advantages of insurance justify the costs due to rising premiums and decreasing market capacity for Bankers Professional Liability insurance.

Compared to other financial institutions and major corporations, the banking sector has long had a more diversified perspective on risk transfer mechanisms, with noticeable variances in the techniques and sizes of insurance acquired. External insurance markets can provide coverage for occurrences with a 1 in 10 to 1 in 100-year frequency for some banks. At the same time, institutions with a higher risk appetite will only consider transferring risk for events with a 1 in the 1000-year frequency.

The Difficult Insurance Market

Over the past two years, insurance intermediaries have been predicting a hardening market with less capacity to underwrite risk and higher pricing. An average of 10 to 50 percent has been added to the London market's Bankers Professional Liability main insurance rates in the last year, as underwriters have sought to decrease their risk.

Is Insurance A Good Investment?

The effectiveness of risk transfer through insurance is tested at the board level, just like any other kind of investment. As long as a bank has not suffered any losses or claims on its insurance, certain boards may consider the annual premium spend a bad investment. Others view the charge as an essential business expense. In our opinion, however, neither technique considers how effective it is. If you look in the short term, how can you tell whether or not a long-term investment is successful?

Is there anything to be gained from the collective knowledge of the industry? One of the most comprehensive databases of bankers' professional liability claims2 contains over 1,500 claims from banks totaling over $19billion over the previous decade. There are modest and regular losses and huge and uncommon losses that are uninsured because of the breadth of the information. There are examples of situations when the deductible is not met and those where it is exceeded.

Looking To The Future

A surge in cyber security risks and phishing assaults, many of which are insurable under Crime and Cyber insurance, has been a primary cause of the first round of COVID-19 pandemic losses. As the global economy makes a comeback, what's next?

As a result of an increase in claims against financial services businesses for negligence and inappropriate conduct during the 2008 Financial Crisis resulted in an increase in Banker's Professional Liability claims to insurers. Investors and firms are likely to take action to recoup losses even though the economic crisis is not directly related to the industry this time around.