Abstract: price that your bank pays to insure itself, its officers, its employees, and its directors from a wide variety of risks is likely going to rise substantially in the wake of the events of Sept. 11. Some banks will be affected more than others, due to the circumstances facing their carriers, and there are steps that can be taken to avoid some of the increases in costs. Your bank's insurance advisors might be able to negotiate a bit at the margin for you, but you can expect to see reduced coverages and increased prices, no matter where in the country your bank is. The whole incident is a real wakeup call to review your insurance program in detail, says Dan A. Bailey, a partner at the law firm Arter & Hadden LLP. Bailey, a D&O expert based in Columbus, Ohio, notes that the incident demonstrates how many different types of insurance can be involved in a single event. Some players will be significantly weakened. impact of Sept. 11 is still more worrisome because, with the economy in recession and loan quality already falling, it may not be long before CAMELS ratings start falling. And D&O and bond insurers are privy to-and act on-these ratings. End of the soft market Bank risk management consultant Gerald Stogniew, head of St. Petersburg, Fla.-based Stogniew & Associates, notes that his clients were facing increases of between 10% and 15% across the board, especially for liability coverages, before Sept. 11. Only a few days after the attacks, he says, he talked to a banking client that was facing substantially higher increases in some areas. The banking industry has been in a soft insurance market for the last ten years, says Stogniew. Any increase would be a shock to bankers, but they are going to see significant increases. In the D&O area, for instance, many banks are now coming out of threeyear policies, written when rates were quite low. Such a massive change is not all the result of Sept. 11, by any means. Certain types of insurance coverages were already becoming harder or more costly to obtain. But, the sheer magnitude of the damage in New York has amplified the trend hugely. The theory of insurance is that the good ones pay for the bad ones, and this event will impact virtually every line of insurance, says William J. Haaland, president and CEO, Banclnsure, Oklahoma City, Okla. ripples spread into the reinsurance market as well. Reinsurance and other pooling mechanisms are designed to spread catastrophic losses broadly across the industry. Given the magnitude of the loss, some of these mechanisms will not work as expected. states a recent report by insurance firm Tillinghast-Towers Perrin. We are already seeing the signs of a looming reinsurance capacity shortage. National Association of Insurance Commissioners is concerned enough that it formed a working group to conduct ongoing financial analysis of potentially troubled insurance companies. organization is also monitoring the condition of the global insurance industry, including reinsurance elements. (NAIC says about 40% of U.S. carriers' reinsurance comes from other countries.) President has already proposed a government-backed reinsurance setup for terrorism risks. I see the market hardening, overall, and coverages becoming more restrictive, says Phil Hoover, director of the community bank insurance program at American Agency, Inc., Minneapolis. Hoover, a bank insurance veteran, handles many different types of policies for banking clients in four midwestern states. An insurance scan Here is a recap of the situation in some of the insurance coverages that banks use: Director's and officer's liability and excess D&O coverage: Among the factors already pressuring D&O were falling corporate earnings, which encourage shareholder suits against directors and officers in all industries, as well as the shakeout among the dotcoms. …
Publication Year: 2001
Publication Date: 2001-11-01
Language: en
Type: article
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