ABA Banking Journal - January 2010 - (Page 18)
INSURANCE & RISK MANAGEMENT Troubled times make for I wary partners In times like these, you need to bond with your carrier, even if you’re not feeling especially gregarious a careful case got Casella what he wanted. Whether a bank is a “have” or “have less,” the insurance purchasing process should be about sharing information and spending time. “We would always advocate an open, partnership-based approach with our clients and this environment is clearly one where demonstrating soundness will pay dividends,” notes Kevin Payne, partner, Financial and Professional Risks, First City Partnership Ltd., London. The firm advises banks on insurance and reinsurance and specializes in the financial sector. “The firm is seeing a reduction in capacity from some insurers and an ‘open approach’ can help to minimize this, particularly in conjunction with the longevity of the D&O insurance relationship,” according to Payne. Pricing and capacity will ever ebb and flow, and lawsuit trends may tempt a banker to toss up hands in frustration as to a given policy’s actual value, but as a rule, D&O coverage is simply too important to be picked up routinely, even in good times. “The policy that protects your most senior people shouldn’t be purchased as if it were a commodity,” says Roger Haynes, executive vicepresident, WGA Risks, William Gallagher Associates Insurance Brokers, Boston. These days, he says, no sophisticated director would sit on a board without coverage. n a potentially severe directors and officers insurance market, no truism is more fundamental than the one that “relationships count.” This remains true despite any lingering discomfort caused by the reality of ongoing bank failures. Strong performing banks will need to remind primary—and secondary—carriers of their strengths, and weaker banks will need to build the best case they can. “We did well for ourselves this year in terms of premium rates and coverage,” says Carmelo Casella, managing director, Corporate Insurance Group for BNY Mellon. “Still, we had to take the time to explain our position in the market and differentiate ourselves with all our carriers. We had to remind the carrier that we operate as a kind of banker’s bank with our custodial and asset management work. Our risks, therefore, are very different than a retail bank.” BNY Mellon has total assets of $212 billion, but has assets under custody and administration of $20.7 trillion, and assets under management of $926 billion. Given the bank’s size, says Casella, it relies on at least 20 carriers to build its “tower” of policy protection. (A multi-carrier approach is a fact of life for any large bank after the tragic events of September 2001, when policies were written for much smaller amounts of coverage.) The effort to build Necessary, complex coverage “D&O has evolved into a complex product,” Haynes explains. “You get the best results in the underwriting [and policy development] process when the insurance companies, intermediaries, and bank representatives have reached a real understanding.” By this he means, all parties know about each other and buy the policy with full awareness of terms and exclusions. Smaller banks traditionally have had fewer options. “The market for smaller and more distressed banks has become more transactional—blended programs can be very difficult to renew and extremely high premium increases are commonplace,” notes FirstCity’s Kevin Payne. “Banks operating under MOUs or C&Ds need to be very open in explaining both their history and their progress to potential insurers,” Payne says. Yet even those banks that have the clout of size to run with a fairly rigorous due diligence process in D&O placement and engage in relationship-buy tactics, sometimes don’t. And this is distinctly odd given the knotty reality of the insurance market where you would expect buyers to show their best game. Last year, financial services companies faced the highest premiums of any indusSubscribe at www.ababj.com 18 JANUARY 2010/ABA BANKING JOURNAL
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