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Article | FINEX Observer

FINEX Observer: Financial institutions year in review

Financial, Executive and Professional Risks (FINEX)

January 18, 2021

After an unpredictable 2020, to say the least, what lies ahead for financial institutions in the year ahead?

Financial institutions errors and omissions (E&O)

The financial lines market for financial institutions hardened this year, and we expect rate increases to continue for 2021. We started the year with rate increases of 5% to 10%, on average, and then saw upticks quarter over quarter as COVID-19 accelerated the rate increases. Double-digit increases are now the norm for FI E&O, even for favorable risks.

FI E&O capacity varies by sub-sector, with plentiful capacity for asset managers, and limited primary capacity for insurance companies, banks and non-bank lenders. Over the course of the year, some insurers pulled back from writing E&O for banks (BPL) and insurance companies (ICPL), particularly in the large account space and for property and casualty (P&C) insurers.

FI E&O losses have long been a challenge for insurers, in particular in the banking and insurance company sub-sectors. However, to date, the FI industry has not been impacted by a material amount of COVID-19 related claim activity as compared with other industries. There are, however, a couple of areas to watch:

  • Paycheck Protection Program litigation around lending practices and failure to pay agents fees.
  • ICPL insurers expect that P&C insurance companies who write business interruption coverage will have one or more lawsuits filed against them for denial of such coverage.

What to expect for 2021

We expect rate increases for H1 2021 to be in line with those we are currently seeing in Q4 2020. As the year progresses, we anticipate that rate increases will slowly taper in H2 2021 given the compounding effect on premiums increases.

Insurers have focused on corrective actions around pricing and retentions. In 2021, we expect a shift in focus on attachments and coverage. A few emerging coverage trends bear watching:

  • Silent cyber risks: More insurers are adding cyber and privacy exclusions on non-cyber insurance lines (e.g., E&O, fidelity, EPL) to clarify coverage. As insurers continue to assess their silent cyber exposures, we recommend reviewing the new exclusions alongside cyber policies to ensure that coverage is being addressed appropriately.
  • Cost of corrections coverage: Some insurers have tried to limit coverage to only liquid asset classes. This can be mitigated with early negotiations on wording, and if needed, increased retentions.
  • COVID-19 exclusions: While we have not generally seen COVID-19 exclusions applied to financial lines coverages, insurers have imposed COVID-19 exclusionary language for P&C insurers with business interruption exposures on a go-forward basis. This is to ensure that their exposure to such claims against their insureds is capped at a single policy limit. In these cases, a free extended reporting period of 12 months may be offered for COVID-19 claims.

5 key trends impacting the FI industry and FI E&O coverage are outlined below. We will be monitoring these trends closely throughout 2021:

  1. 2020 US election: political and regulatory uncertainty, change in heads of regulatory agencies, potential unwinding of deregulation efforts.
  2. COVID-19: regulatory scrutiny of policies and procedures, deterioration in asset quality, digitalization transformation, Pandemic Risk Insurance Act, insurers potentially being required to pay uninsured COVID-19 claims.
  3. Market volatility and economic contraction: questions around additional fiscal stimulus, low interest rate environment, in periods of declining investment returns there may be increased claim activity due to trade errors and litigation from unhappy investors and regulatory investigations.
  4. Environmental, Social & Governance (ESG): climate change risk is on the radar, sustainable investing is top of mind, scrutiny of ESG initiatives by regulators, shareholders, investors and clients.
  5. Consolidation: increased pressure on profitability and need for scale will drive industry M&A, the impact of COVID-19 will create more attractive opportunities for buyers


This Willis Towers Watson publication is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. If you would like additional information, please contact us. Some of the information in this publication may be compiled by third party sources, whilst we consider these to be reliable, we do not guarantee and are not responsible for the accuracy of such. The views expressed herein are not necessarily those of Willis Towers Watson. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates, for example: Willis Towers Watson Northeast, Inc. in the United States, Willis Canada Inc., in Canada.

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