Issue: March 2012 / May 2012
Trustees can be seriously affected by changes, including much higher premiums, in the market for fidelity and professional indemnity insurance. Teri Solomon and Ian Haigh offer fair warning.
Again there are major changes in the insurance industry. Some of them particularly concern the crime, liability and personal-indemnity insurance for retirement funds and their trustees.
This year sees critical revisions to both the cost and the scope of cover. It’s vital that the boards of retirement funds, or their nominated committees, urgently revisit and reassess them.
The insurance is designed to cover:
The definition of “officer” had always included “fund administrators and third-party service providers”. This makes the cover extremely wide. It also increases the risk to insurers of paying claims arising from third-party fault.
Such risk did indeed increase during the 2010-11 period. There were claims running into several million rand. Camargue Underwriting Managers, the lead insurer for this class of insurance, has accordingly amended its coverage terms.
Rates have increased by 50% on average. Moreover, cover has been restricted to exclude all losses caused by investment managers. Cover has also been severely restricted for losses caused by third-party administrators.
These changes in cover have resulted in the need for fund boards to address, amongst other things, the:
Fidelity and professional indemnity is an extremely technical class of insurance, with extremely complex claims scenarios. Boards should therefore seek specialist broking and legal advice not only on their fund’s insurance requirements but also on their risk profiles.Teri Solomon is a divisional director at Marsh & McLennan. Ian Haigh is a senior consultant at Old Mutual Corporate. They write in their personal capacities.