Many businesses have diversified their service offerings via technology in order to survive in today’s corporate climate. Financial institutions are no different.
The question is: Are you covered under your business’ Errors & Omissions (E&O) policy for these additional services? Possibly not.
What is E&O insurance? How does it protect my financial institution?
E&O coverage, otherwise known as professional liability insurance, protects service and advice-providing businesses with coverage for claims of failure to perform, bad advice, negligence and financial loss.
While most financial institutions have some form of E&O insurance, it is typically a policy designed to cover specific advisory services, not every service. Every time a business adds a new line of service, E&O coverage must be reviewed or instated for that specific service. In many cases, financial institutions are unaware that they don’t have coverage for services that make up a portion of their revenue. Here are a few examples:
Scenario #1: A large insurance company serves as the claims administrator and call center for a number of smaller insurance companies. These services leverage a technology platform owned by the larger insurer, while the data is provided by the smaller insurers.
The insurance company has E&O coverage for their primary service – selling insurance. The technology platform used for other insurers, however, presents a totally new and different exposure than selling insurance direct to customers. Without a separate Technology E&O policy, a lawsuit from one or more of the smaller insurance companies, or on behalf of a group of their customers, claiming poor advice, negligence with the data or a computer glitch, would leave the insurance company without coverage.
Scenario #2: To meet the skyrocketing demand for electronic payments from one banking institution to another, one bank used its own money transfer system to input data.
When the bank’s transfer system inadvertently deposited a large sum into the wrong third-party account, they were the subject of a lawsuit to recover it. The claim wasn’t covered by the bank’s E&O policy because the third party who sued wasn’t a client of theirs and their electronic transfer system wasn’t an insured service on their E&O coverage.
Scenario #3: A mutual fund manager began by investing capital in real estate. They now also buy properties through their mutual fund, but a separate division maintains and manages the physical assets. Their current E&O protection is for their mutual fund management and investment advice– their primary line of business.
Without an E&O policy that’s specific to both of the business’ real estate exposure , i.e. Property Management E&O, and mutual fund management, the firm could face a lawsuit for mismanagement of properties, negligence with their tenants and more.
Do I need additional E&O coverage?
The first step in determining if you need to expand your E&O coverage is to work with your broker on a due diligence review of your policy to ensure you understand what is covered.
Define all the services you provide as a financial institution. Consider each division and their potential exposure as well as their client base. Any time your organization provides another service, no matter how small, it needs to be captured by your E&O policy. Look at the wording of your E&O contract. What does it say?
Remember that just because a policy doesn’t say something is excluded from coverage, doesn’t mean it’s covered. If a professional service is not covered by the contract in the first place, the insurer doesn’t need to bother excluding it.
Contact your HUB Financial Services expert for more information on E&O coverage for each of your business exposures.