FAQ category: Financials Institutions

Insurance for this sector is usually purchased in a package or portfolio. This means the financial lines insurance form part of a single package with a single insurer. This is particularly common for small and medium-sized financial services companies, asset managers, financial institutions or fund managers.

The most common package combines professional indemnity, crime insurance and directors’ and officers’ insurance. Recently, some insurers have started to offer cyber insurance, and in some cases public and employers’ liability extensions.

We advise you get professional indemnity and directors’ and officers’ insurance as a minimum. In fact, depending on your Financial Conduct Authority (FCA) permissions, professional indemnity might be compulsory.

Depending on whether you handle client funds on your own platform, crime insurance might or might not add value. We can help advise you.

In recent years, we have seen an increase in claims, in part driven by social media and campaigns by some law firms, often referred to as ‘claims farmers’. These campaigns, previously focused on large investment providers, are now targeting companies of any size.

We will be able to advise but it’s worth knowing that:

• Some insurers will exclude unregulated investment products or offshore investments.
• Whilst not usually relevant to financial services unless you have an independent financial adviser or advisory department, in recent years insurers have been very concerned with advice on defined benefit pension transfers.
• Most policies will exclude claims in the USA and Canada and some insurers will restrict to UK claims only. More obvious exclusions are fraud, unless the fraud relates to an employee acting without consent or knowledge of directors and managers.
• Many insurers will ‘aggregate’ coverage meaning insurers will apply a policy cap to all claims. This can restrict cover significantly. For example, you may purchase £1,000,000 professional indemnity, £1,000,000 crime and £1,000,000 directors’ and officers’ insurance, but the insurers will apply an overarching policy limit of £1,000,000 meaning the total for all such claims will be £1,000,000 throughout the policy period. The result is £1,000,000 professional indemnity insurance can exhaust the cover, leaving directors with no cover. Sometimes, you’ll only be offered aggregated cover but with separate policy limits for each module (professional indemnity, crime and directors’ and officers’ insurance). If this is affordable it’s an approach that should be carefully considered.

It is crucial that you understand your policy excess and how it can be applied in practice because excesses for this sector can be very high, with some starting at £25,000.

It can be complicated too but we can advise you.

Some excesses will apply to “each and every claimant”. This means that if your investment portfolio suffers a sudden crash due to unforeseen external forces and you receive several claims from investors simultaneously, your excess will apply to each claimant. If you have a £25,000 excess and receive five investors complaints, that would result in a total policy excess of £125,000 for the business.

Other policies will state that claims related to the “same originating cause” are deemed to be one claim and one excess – a more favourable approach for financial services