How Well Are You Covered? "Sandy" and Cybercrime Have Made Clear That Banks Must Review Policies and Confirm They Are Adequately Insured
Melanie Scarborough · ABA banking journal · 2013
[ILLUSTRATION OMITTED] Your Customer is a familiar mantra to banks. But how many heed Your Policy? Adequate insurance coverage can make difference between staying in business and going bankrupt should disaster strike. Yet insurance policies are complex documents, and they sometimes have obscure exclusions that banks may not realize until they file a claim. Insurance companies adapt coverage as threats evolve, so banks need to keep abreast of trends and monitor and update their policies. Most banks carry basics: DO blanket bond that covers criminal acts by employees; Employment Practice Liability Insurance for suits that may be brought by disgruntled workers; and property and casualty insurance. probably need automobile coverage for business vehicles and worker's comp in case of an employee accident. Some have exposure for foreclosed properties, repossessed vehicles, trust properties, and leasing operations. Every time you add a new product, you add a new risk and have to protect against that, says Steve Wilson, chairman and CEO of LCNB National Bank, an $800 million-asset institution headquartered in Lebanon, Ohio. You have to know external threat. Is it phishing, debit-card fraud, credit-card fraud? It shifts, but you try to be as sure as you can that you're covering all your risks. The latest trend he's seeing is customers scammed through cybercrimes, which bank can do little to prevent because, while it may have protections in place, its customers may not. They get hacked, and someone uses information to come to bank and order a wire transfer, he says. your exposures Insurance against cybercrime is a growing concern for bankers as internet fraud becomes more common and costly, says Scott Kannry, vice-president, Financial Services Group of New York-based Aon. If somebody hacks into a bank and drains accounts, traditional coverage takes care of that. But notification costs; any measures of goodwill, such as identity monitoring; and possibility that bank can be sued by customers--that's what new policies contemplate, consequential costs. bank that has an older policy is unlikely to be covered for consequential costs, he says. Know insurance world is changing around cyber and be sure you're covered not only for traditional losses, but also for new liability with data breaches and customer information. The latest progression in such insurance is coverage for future revenue loss. Until recently, reputational component of a data breach was mostly uninsurable, Kannry says. Now there are policies that insure against losses if customers defect. These policies have only been in market a few months and are not readily available, he says, but they represent the next wave in what we're seeing develop from an insurance perspective. Very large banks with specialized risk-management departments and brokers usually have a good sense of their exposures and have developed their coverage portfolios accordingly. For rest, understanding precisely what their policies cover--or don't--can be a daunting challenge. As partner-in-charge of Dempsey Partners' New York office, Jill Dalton leads value-quantification practice and performs risk-consulting services, including property-policy wording reviews. She often sees a mismatch of expectations and a lack of understanding about what's covered. A policy may have a limit for flood and a separate definition for 'high-hazard' flood, she gives as an example. Another common area of misunderstanding is how deductibles apply. A lot of policies will have a deductible that says 2% or 5% of values, but it may not be clear what it applies toward, Dalton says. Two percent of what? Is that just structure, or is it also contents? …