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Asset managers: Is your D&O insurance still fit for purpose?

Financial, Executive and Professional Risks (FINEX)

By Claire Nightingale | December 4, 2019

In a rapidly changing and complex regulatory environment, including regimes focusing on personal accountability such as the UK’s Senior Managers and Certification Regime (“SMCR”), newly implemented in respect of the asset management industry, it is critical to examine closely directors’ and officers’ liability coverage to ensure it meets your needs.

Directors’ and officers’ (D&O) liability insurance is crucial to securing and retaining talent and managing business operations. But in an ever-changing regulatory environment, how can you be sure your D&O policy is fit for purpose. Does your D&O policy provide the protection you want it to?

Ask yourself the following questions to determine if your D&O insurance meets your evolving needs in the light of SMCR:

  1. Who do you want the policy to cover?

    D&O policies can cover an expansive range of people working at an asset management business. Consider the scope of the definition of “insured persons” and ensure it covers the correct group of individuals. Ask the following questions:

    • Which individuals would you like to have the benefit of management liability indemnity from the insurance market?
    • Do you want to protect other employees beyond directors and officers? If so, only if they have management or supervisory responsibility?
    • Do you want to protect only those authorized to perform senior management functions?
    • Do you want to protect employees who are fulfilling certified functions and if so all, or only certain categories, such as “material risk takers”?

  2. Are your policy limits sufficient?

    A new regulatory regime or heightened regulatory focus on individual accountability may result in an increase in the number of investigations for which individuals will require legal advice.


    • Are the policy limits sufficient? Particularly when taking into account the number of individuals who may access the policy and also whether the limit is shared with the company itself. For example, against securities claims.
    • Have you considered ring-fencing cover for certain individuals such as the main board in the event the company cannot or will not indemnify them, or to ensure the limits are not exhausted by claims against the company (in the event securities claim cover is purchased)?

  3. How broad is the “investigations costs” cover under the policy?

    To ensure that senior individuals are protected and their legal costs will be paid in the event of interest from the regulator or other body, check that the investigation costs cover is sufficiently broad and that the threshold for triggering cover is not too stringent.

    For example, the trigger point may be a “formal” or “official” investigation or examination that is deemed to commence upon receipt of a regulatory notice or similar document identifying an insured person in writing. More specifically, check whether cover may be triggered by any requirement or request from the regulator for an insured person to answer questions, attend interviews with the regulator, provide witness testimony, produce documents / records / information, participate in any meetings or proceedings.

    Lastly, is there any provision for an individual to incur emergency costs without requiring insurers’ consent, and again beware sub-limits.

  4. Do you have pre-investigation costs cover? If not, do you need it?

    What cover, if any, is available for insured persons to seek independent legal advice under the firm’s D&O insurance program in pre-enforcement dealings with regulators? This might include a raid or visit to the company by a regulator, which involves documents or records being reviewed or confiscated, or an insured person being interviewed by the regulator; a public announcement relating to such an event or an internal inquiry leading to a formal notification being made to a regulator about an actual or suspected material breach of an insured person’s legal or regulatory duties.

    Equally, is there any provision for an individual to incur emergency costs without requiring insurers’ consent, and again beware sub-limits.

  5. Do you want to cover events with a regulatory touchpoint before a D&O policy would respond?

    Cover for investigation costs (and pre-investigation costs) under a D&O policy is usually triggered by an external source: for example, receipt of a formal notice from the regulator and does not cover “business as usual” interactions with the regulator. This may leave a senior individual exposed before the D&O policy is triggered.

    Consider a policy that provides cover for a senior individual’s legal costs before cover under a traditional D&O policy is triggered. This is referred to as a LEAP policy (Legal Expenses Additional Protection) and can be purchased by a company on behalf of its senior individuals.

    A LEAP policy can be triggered by a senior individual’s subjective assessment that they require legal advice and will provide protection for senior individuals in connection with all dealings with regulators and investigatory authorities worldwide. This includes consideration as to whether certain information should be disclosed to the regulator, pursuant to Senior Manager Conduct rule SC4.

As you can see D&O coverage can be complex. As with any insurance, but perhaps even more so with D&O, it’s critical for asset managers to read and understand their policies completely. And when in doubt consult your brokers and/or legal advisors to help ensure your coverage is fit for purpose.

My thanks to my colleague Tom Pemberton for co-authoring this article.


Global Head of FINEX Financial Institutions Claims Advocacy & TPL

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