Third-party financial loss indemnity insurance for financial institutions (FI) is also widely known as Errors & Omissions insurance. The terms Errors & Omissions (E&O) and “Professional Indemnity (PI)” are often used interchangeably.
We understand the term financial service provider to refer to the following business models in particular:
- Banks (e.g. private banks, public banks, savings banks, credit unions)
- Insurance companies
- Asset managers
- Fund managers / fund initiators (e.g. asset management companies) for all investment classes, including
- Private equity and venture capital companies
- Issuing houses
- Investments companies
- Brokers (e.g. insurance brokers, financial service brokers, etc.)
What is insured?
The insurance covers the statutory third party liability of the policyholder for breach of duty when performing professional duties. As a rule, only the activity described in the risk description is insured. The amount of the insurance sum can be basically freely decided – with the exception of minimum insurance sums in the mandatory insurance area (e.g. financial service brokers). When choosing the “appropriate” insured amount and any maximisations, it is necessary to consider various criteria, such as fund or order volume, the agreed contractual liability limits, the spread of risk required by the business model on the basis of investment in different investment classes, client structure, etc.
Who is insured?
As a rule, the insurance relates to a parent company or holding as the policyholder. Depending on the business model, insurance cover also extends to the subsidiaries and fund managers. The organs of the company and the employees who work for the company are also protected by the insurance cover.
In particular, in the case of activities that entail a product liability risk, the personal liability of the persons acting on behalf of the company (usually the company’s organs) and the legal entities (usually the fund manager) are almost impossible to separate definitively. Joint and several liability can even apply. In general this can be resolved with combined D&O/E&O insurance in order to fill any gaps in cover.
Who provides the insurance?
There are about 10 to 15 insurers to choose from when insuring financial service providers. The number of insurers suitable for a basic contract (so-called “management insurers”) is smaller and depends on the client segment.