Finance and Insurance

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How These Industries Connect:

Like many industries, the finance and insurance industry provides valuable services to millions of customers. Those who work in this industry know the risks that come with handling finances.

Both financial and insurance companies should also be aware of the dangers that can occur while doing business in the 21st century. The best solution is to purchase insurance policies that will secure against many different types of claims.

Read on to understand what insurance you may need.

Who Needs Insurance?

All financial and insurance companies should carry several forms of insurance. Insurance companies may need to cover a wide range of areas, including company vehicles and computers, as well as protections against claims of fraud or improper handling of insurance claims.

Financial companies should be aware of the laws governing the industry. Any business handling money and personal information should be particularly concerned with their responsibilities as a trustee, and should ensure that they maintain policies that insure against claims related to legal or contractual obligations.

The similarities between financial and insurance companies have led the federal government to classify these two industries together. Companies within this sector will have similar concerns, and will need to purchase similar policies. This industry refers to businesses such as:

  • Accounting Firms (~140,000 businesses in the U.S.)
  • Insurance Companies (~6,000 businesses in the U.S.)
  • Mortgage Lenders (~8,000 businesses in the U.S.)
  • Asset Management Companies (~5,500 businesses in the U.S.)
  • Commercial Banks (~5,000 businesses in the U.S.)

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What Insurance Do Finance & Insurance Companies Need?

Insurance needs within the finance and insurance industry vary depending on the type of business. Any company doing business in this industry should strongly consider all of the following types of insurance:

Professional Liability

Professional Liability covers claims of:

  • Financial Loss: Claims made against your company related to financial loss are common for both insurance and finance companies.
  • Negligence: A Professional Liability Insurance policy will cover claims of negligence on the part of your company or employees.
  • Litigation Defense: This insurance policy will cover the cost of your company’s defense if a claim goes into litigation.
When Should You Get Professional Liability Insurance?
  • Right away. Professional Liability insurance is one of the most important insurance policies for both financial and insurance companies.
For Example:

If an employee of an insurance company miscalculates the amount of money a client should have received as a result of a claim, this may result in a claim made directly against the insurance company.

Fiduciary and Surety Bonds

These bonds focus on two key areas:

  • Breach Claims: Covers claims that the legal fiduciary agreement has not been met. There are a wide number of reasons why this type of claim may occur, beyond just negligence.
  • Contractual Agreements: Surety Bonds are designed to ensure that contractual agreements are met by a business offering a service. The bond exists as a means of providing compensation for the client in case the business fails to meet its obligations. A neutral third party, known as the surety, stands in to arbitrate if a complaint arises.
When Should You Get Fiduciary Bond or a Surety Bond?

If you are legally considered a “fiduciary” under ERISA, you need to obtain this insurance policy immediately. Anyone who handles pensions, 401(k) plans, 403(b) plans, savings plans or any type of retirement account will be considered a fiduciary.

A Surety Bond may be required for your business. Many businesses that offer services are legally required to purchase varying amounts of Surety Bond insurance as a prerequisite to acquiring a business license in some states and cities.

For Example:
  • If a client’s investment account severely underperforms the market, he or she may make a claim that the fiduciary agreement has been breached.
  • If a security alarm company fails to install a system after it has been paid for, a Surety Bond would cover the customer’s claim.
Other Things to Note:
  • According to the federal government, stock brokers do not fall under the definition of a fiduciary under ERISA. This does not mean that stock brokers are free from different fiduciary responsibilities, however. Stock brokers will need to consider different types of insurance to protect themselves for their own, separate responsibilities to clients.
  • Surety Bonds should not be confused with Fidelity Bonds. Fidelity Bonds cover acts of theft by an employee, while Surety Bonds exist specifically to provide compensation for customers in cases of breached or unmet contract agreements.

Directors and Officers

Directors and Officers Insurance will cover:

  • Mismanagement Claims: Covers the legal defense and other liability concerns related to mismanagement by the directors or officers of a company. This includes companies that possess a board of directors.
When Should You Get Directors & Officers Insurance?

Right away. Every company is at risk for claims related to mismanagement at the leadership level.

For Example:

If the board of directors for an asset management company makes an unpopular decision for how to handle declining stock values, each director may be sued by shareholders. A Directors and Officers Insurance policy may cover the legal defense costs of this claim.

Other Things to Note:

All businesses within the finance and insurance industry should carry this type of insurance. A common misconception by small business owners is that this type of insurance is only for larger, publicly traded corporations. However, any director or officer of any business, large or small, can be sued due to issues stemming from mismanagement of any kind.

Commercial Property

Commercial Property Insurance covers two key areas:

  • Buildings: Commercial Property Insurance provides coverage for the unexpected damage or loss of buildings registered to the business
  • Business Property: Property such as computer equipment can be covered under this type of policy
When Should You Get Commercial Property Insurance?

You should purchase this type of insurance from the moment you begin operating your business. Any building or piece of equipment that helps generate income should be covered.

For Example:

If a fire breaks out in your office, you may lose the building and the necessary equipment inside. Commercial Property Insurance will cover the cost of everything that was lost as long as it was written into the policy.

Other Things to Note:

Commercial Property Insurance may not extend all the way to commercial vehicles. While some forms of vehicles may be covered, vehicles such as trucks or cars used for the business would need to be covered with a Commercial Auto Insurance policy.

General Liability

General Liability Insurance covers two important areas:

  • Property damage: Insures against liability related to accidental damage of a client’s property.
  • Bodily injury: Compensates customers or clients when injuries occur on your property
When Should You Get General Liability Insurance?

Finance and Insurance companies that welcome customers and clients into a physical office should consider this insurance. While this is not true for all businesses in this industry, it is true of many small to medium-sized companies, as well as businesses work in consultation.

For Example:

If a customer receives an injury in your office while receiving tax advice, your business will be held liable for damages. This type of insurance will cover this claim..

Other Things to Note:

General Liability insurance is primarily designed to free your business of financial liability related to property damage and bodily injuries. However, it will not cover your company’s losses should your own property get damaged, nor will it cover your business should such instances result in a loss of business.

Other Insurance Types to Consider:

  • Commercial Auto Insurance (for insurance companies): Many insurance companies own and use company vehicles. These should be insured through an auto insurance policy for commercial vehicles.
  • Cyber Liability Insurance: The finance and insurance industry should be concerned with cyber crimes. Lost data as a result of a cyber attack can be extremely damaging to a company and its clients. As insurance and finance companies house a tremendous amount of personal data for clients, maintaining a Cyber Liability Insurance policy should be considered.

How Much Does It Cost?

Every insurance policy is different. The total cost of any insurance policy you purchase will vary depending on the size and location of your company. In some cases, the number of assets that your company manages will have a direct impact on the cost of certain insurance policies.

The best way to determine the cost of your insurance policy is to obtain a quote.

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