Newfront’s Guide to Bank Closures and Insurance: Five Considerations for Protecting Your Assets
Published March 16, 2023
Silicon Valley Bank (SVB) customers may be breathing easier now that the Federal Deposit Insurance Corporation (FDIC) announced it is protecting all deposits, but companies and individuals are still reeling from the closure and associated impacts. Now is the time to explore the best way to protect your assets should another financial institution catastrophe occur. Here are the top five considerations Newfront recommends when it comes to insurance and bank failures:
Understand your Directors & Officers (D&O) coverage. Many are asking if their D&O policies will provide coverage if their companies are unable to make payroll. Unfortunately, D&O policies exclude wage and hour claims, as do most Employment Practices Liability policies. “However, D&O coverage could potentially be triggered when a wrongful act is alleged,” says Deirdre Finn, the Practice Leader of the Executive Risk Solutions (ERS) team at Newfront. “If an employee, shareholder, or vendor claims that the company mismanaged their financial resources with respect to the FDIC insurance limit of $250k, there would be the potential for coverage under the D&O policy.”
Review your Financial Services Errors & Omissions (E&O) insurance. Financial institutions or fintech companies that touch client money (such as neobanks, non-bank lenders, or investment advisors) and who buy Financial Services E&O insurance should review the Counterparty Insolvency Exclusion. “No off-the-shelf policy is the same with respect to coverage or policy wording in this line of insurance,” explains Pat McChrystal, Senior Vice President & Financial Institutions Team Leader at Newfront. “These are highly negotiable contracts where **who your insurance broker is can really make all of the difference between a claim being denied and millions in recovery.” **Custom solutions are critical to ensuring your insurance program aligns with business’ activities and services, risk tolerance, and commensurate exposures. Newfront is dedicated to creating strategies and solutions that keep your assets, clients, and employees safe.
Understand your business interruption coverage. While business interruption insurance under a Property policy can cover loss of income due to a slowdown or suspension of operations, coverage is triggered by a loss to physical property. In a Cyber insurance policy, business interruption intends to cover loss of income after a privacy or security breach impacts a business. Coverage under either policy is unlikely to be triggered by what occurred with SVB. “Coverage is subject to the terms and conditions of the individual policies,” says Tracy Tenorio, Senior Vice President and Practice Leader. “If an insured suffers a loss, we make sure to look at potential avenues for coverage across all policies.”
Be aware of the different cyber attacks that are common after these exposures. Cyber attacks aren’t limited to phishing. “Spoofed websites can also be a concern,” says Arturo Perez-Reyes, Lead Cyber Strategist for Newfront. “After the Equifax breach and during COVID lockdown, many hackers created fake websites encouraging consumers to enter sensitive information and even change their wiring instructions to send through this spoofed site.” See more tips on how to avoid wire fraud and associated concerns here.
Schedule time with your insurance broker and risk team to review all your coverage and potential needs. “Involving third parties can be incredibly beneficial in establishing and maintaining a successful risk management program,” says John McCall, Financial Institutions & Fintech Practice Leader for Newfront. “Your insurance broker should be able to assist in developing strategies and solutions that keep your company, customers, and employees safe.”
Contact your Newfront representative today to explore these considerations, or schedule a consultation below.
