Professional Indemnity Insurance for Financial Institutions

To err is human, and we all make mistakes. However, not everyone is forgiving, especially when it comes to matters of finance. If you, as a financial service provider, cause severe monetary losses to your client (be it a bad piece of advice, error of judgement, etc.), chances are your client might seek hefty compensation from you. This is when professional indemnity insurance for financial institutions can come in handy.

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Professional Indemnity Insurance

Sometimes known as professional liability insurance or error & omission insurance, this insurance type provides ‘indemnity’ cover to the insured. This insurance covers legal and other related costs if the insured commits a professional error. Without adequate professional liability insurance, your business might face financial expenses like attorney fees, defense expenses and other court-related expenses. It is thus vital for businesses to have professional liability insurance.

Professional Indemnity Insurance for Financial Institutions: Why is it needed?

Financial institutions like banking and insurance companies, stockbrokers, regulated marketplace lenders, clearing houses, etc. are exposed to a myriad of risks. No matter how careful these entities are, complex laws, various business scenarios, or simply carelessness may lead to a potential for loss and litigation. Their work is hence constantly under scrutiny by their clients. When things go wrong, the impact can be catastrophic, so professional indemnity insurance for financial institutions can be reassuring.

Professional Indemnity Insurance for Financial Institutions Coverage

Insurance providers usually do not cover financial institutions under general professional indemnity insurance. However, few of them provide a comprehensive, tailored-made insurance policy to cover their liabilities. These policies help protect them against unprecedented liability risks in an ever-evolving and complex regulatory environment.

Insuring clause

The insuring clause is one of the most vital components of an insurance contract. It outlines the main protections and coverage offered by the insurer (insurance company). This clause lists risks the insurer is liable to pay when a claim arises and defines the scope of the coverage. That is why it is very critical for businesses or individuals to understand this section of the policy.

Some of the coverage points under professional indemnity insurance for financial institutions may include:

- Claims arising from acts such as errors, omissions, misleading statements, breach of trust, breach of duty by the financial institution while performing their services or failing to perform professional services

- Coverage of the financial institution and its subsidiaries

- Defense costs

- Mitigation and correction costs of defamation

- Professional Investigations and representation costs

Exclusions

Exclusions are the stated legal cases or conditions under which the insurance company has the right to NOT pay the claim. This means exclusion is something that is not covered under the insurance policy. 

Exclusions are clearly stated in the policy document. Understanding and comparing them with similar policies can help policyholders make the right decision. They underline the fact that insurance doesn’t completely protect the insured from risks.

Some common exclusions under professional indemnity insurance for financial institutions may include:

- Fraudulent, dishonest, criminal, or malicious act

- Bodily injury, disease, or loss or damage of third-party property

- Loss or damage to any goods or other property

- Actual, attempted, or intentional breach of any laws

- Insolvency of the insured

Conclusion

Comprehensive professional indemnity insurance for financial institutions aims to protect your directors, employees, and business at large. It can provide a financial shield against alleged wrongful acts in delivering professional service or failure to perform such services to your customers.

Written By: PolicyBazaar - Updated: 11 October 2022