Banking Crisis Puts D&O Underwriting Under The Microscope

According to a recent article posted by Business Insurance, experts expect that last month’s federal takeover of two high-profile mid-sized banks will create a ripple effect that could impact the cost and availability of directors and officers liability insurance in the financial sector. However, experts are not certain on how things will ultimately settle.

Banks should expect close questioning by their D&O insurers during their next renewals. “This means taking a deeper dive,” not only into performance but the portfolio, how the management team is structured, executives’ backgrounds and the institution’s regular relationships, said Eileen Yuen, Whippany, New Jersey-based managing director of Arthur J. Gallagher & Co’s financial institution practices.

Underwriters will ask many more questions, and companies must be prepared to provide much more detail about their potential exposures than they have in the past, said Kevin LaCroix, executive vice president in Beachwood, Ohio, for RT ProExec, a division on R-T Specialty LLC.

“They [bank boards and bank risk committees] want to make sure they have a clear record of their responsibilities in case the worst happens, and they have to defend their record,” said Priya Cherian Huskins, San Francisco-based partner and senior vice president at broker Woodruff Sawyer & Co.

Policyholders should review their policies and make sure there are no “hidden traps,” said Larry Fine, New York-based management liability coverage leader for Willis Towers Watson PLC. Companies should make sure they do not have regulatory or bankruptcy exclusions, although the latter are rare in the United States, he said.

“Conduct a thorough review of recent events that took down other institutions,” and “refine your own company’s control and procedures to best manage that risk,” said Tom Orrico, New York based managing director, financial institutions, at Lockton Cos. LLC. “Investigate any new capacity in the marketplace” and “meet with as many insurers as possible to tell your story,” he said.

Joe Catalano, Chicago-based executive vice president, professional lines, at Amwins Group Inc., said corporate bank customers should examine their banking relationships to see if they can diversify them to spread out their deposit risks and perhaps hedge against interest rate fluctuations.

To read the full article by Business Insurance, Click here.

Source: Business Insurance, April 3, 2023

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