Bank liability insurance takes rate & new scrutiny after bank failures

Insurance rates for management and professional liability in US banks could moderate to an up to 15% rate of growth on average in 2023, but with insurers adding new layers of scrutiny following recent major bank collapses, a key US insurance broker is predicting.

“As 2023 progresses, we expect to see a market environment that continues to moderate for banks, with average overall rates varying between flat and +15% across most management liability lines,” leadership in the financial institutions practice at AJ Gallagher wrote in recent market commentary.

The spate of bank collapses in the US and the forced merger rescue of Credit Suisse will put banks under new lenses of the insurer microscope.

“Banks can expect to see repercussions manifest in the underwriting process,” Gallagher's managing director for financial institutions, Eileen Yuen, wrote.

Expect a close review of the customer base, “particularly any concentration in a specific industry sector,” she writes, with apparent allusion to the start-up tech-sector focus of failed US bank SVB or the crypto-ties of Silvergate.

Also up for closer review: a more "thorough" analysis of financial metrics, a focus on management team structure and tenure, and a review of the relationship with regulators.

D&O covers for publicly traded banks will continue to be the outlier to the overall rate inflation picture and insureds with good track records can expect rate decreases on primary layers and greater saving in excess layers, Gallagher believes.

The up to 15% aggregate average gains would follow a year in which cyber, bank professional liability (BPL)/E&O, fiduciary liability and financial institution bond all by and large exceeded those growth rates.

The insurance market for bankers witnessed trends from across the industry, including the drive for rate and rising retentions and risk-sharing alongside tightened capacity.

“However common these trends were, they weren't universal,” authors noted.

Mark renewal increases anywhere from 30 to 50% for cyber, with levels well beyond that for banking institutions with loss records or substandard controls.

BPL and E&O accounts were up 15 to 25% for larger institutions, especially for those with claims activity, impaired financials or regulatory issues.

Elsewhere, rates on fiduciary liability were up in a range of 15 to 25% amid pressure chiefly from continued litigation around excessive fee issues. Renewal rates on financial institution bonds were up 10 to 20%. Employment practices liability was up 5 to 15% with the exception of banks with California exposures, claims activity or those adversely impacted by COVID-19.

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