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Looking to insure themselves from scams, BFSI firms want dual liability covers

April 16
15:29 2018

Three months ago, a diversified financial services player was in talks with a public sector general insurance company  to insure its directors.

Though the deal did not materialise at that time due to high premium, the company has now come back asking the insurer for a Directors & Officers (D&O) liability, and as well as Errors and Omissions (E&O) coverage. It is now even ready to pay a higher premium.

The Directors and Officers (D&O) Liability Policy covers the liability incurred by acts of omission and commission by top management of companies. However, while the policy provides for coverage even in cases like sexual harassment, there are specific exclusions which companies make. E&O, on the other hand, covers any wrongful acts of any employee of a company for which they could be held liable as an institution.

The turn of events in the financial sector  – from the PNB scam to the ICICI Bank imbroglio – has led to companies scurrying for cover in anticipation of any legal or financial liability from stakeholders due to any any errors by the staff.

“We had seen that E&O was usually taken by a certain set of firms including law firms, attorneys or organisations working in the medical field. Now even banks and broking houses are asking for these covers apart from D&O, even though past claims have led to an increase in premiums by at least 20-30 percent,” said the underwriting head of a mid-size private general insurance company.

“Any individual’s lack of foresight or financial decisions as a member of a particular team could be liable for legal implications on their employer, client if any wrongful acts are detected. So, BFSI clients want to err on the side of caution, even though intentional frauds are an exclusion,” said the chief general manager of a state-owned general insurer.

Here, the premium is based on the size of the company and the number of members that they intend to cover under the policy. However, any criminal, dishonest, fraudulent, willful, intentional or malicious act is not covered.

In the banking sector in particular, the Bankers Indemnity Policy has become a must-have for all the institutions, even though public sector banks are yet to warm up to the idea.

Moneycontrol had reported earlier that bankers are leaving no stone unturned to ensure that liabilities arising out of their employees’ misdeeds are covered by insurance. There is an increase in the demand for higher limits and specialised covers from insurers.

Last week, Axis Bank said that its MD & CEO Shikha Sharma’s term has been reduced to seven months from three years at her request. The decision to reduce the term came days after reports suggested the Reserve Bank of India had asked Axis’ Board to reconsider Sharma’s reappointment at the helm for the fourth term on the grounds of the bank’s dwindling financial performance.

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