MPR offers a financial lines package policy to Investment Management Companies.
Protection of the assets of both the investment manager and its directors is vital within an increasingly challenging operating environment. Financial and reputational risks are growing in complexity and scale. The Management Risks Insurance package policy for Investment Management Companies is an integrated solution and provides four important sections of cover, each with its own limit.
Why do your clients need Investment Management Insurance?
- Directors, officers and senior managers can be exposed to a broad spectrum of civil, criminal and regulatory actions, often involving hefty costs. Specialist lawyers do not come cheap. Depending on the nature of the allegations, hourly rates can be many hundreds of pounds.
- Investment managers owe a professional duty of care to their investors. This, coupled with an increased awareness of legal rights and remedies, means that protecting the assets and reputation of an organisation is very important.
- However diligent an organisation, mistakes are possible and protection is required from third party claims alleging negligence or for other legal liabilities. Good risk management and compliance practices can go a long way to mitigate exposures to claims but cannot eliminate them completely.
- Even when a firm has done nothing wrong, disputes can occur and problems can quickly intensify, leading to escalating defence and settlement costs.
- Keeping pace with change, accelerated by technology, exceeding customer expectations and growing a business profitably demand comprehensive risk management strategies. Insurance for the company is a key element of this.
- According to the Association of Certified Fraud Examiners, the average organisation loses about 6% of its total annual revenue to fraud and abuse committed by its own employees.
What does the policy cover?
A comprehensive package policy providing cover for:
- Directors and officers insurance; to insure directors and officers (and in some cases other employees) for defence costs and legal liability incurred because of claims and prosecutions against them in their role in their organisation. Also, to insure them for representation costs in investigations of them by regulators and other authorities.
- Professional indemnity insurance; the purpose is to insure an organisation for defence costs and legal liability incurred arising out of their business activities including, but not limited to, liability for: breach of professional duty
- Crime insurance;
- Theft of money, securities or property belonging to a client of an insured organisation;
- Social engineering fraud;
- Forgery;
- Extortion;
- Expenses arising from crime.
What limits are available?
Your clients can choose the limits they need for each area of exposure as each section has a separate limit.
What does an underwriter like to see?
- Established businesses.
- Financially sound organisations with experienced management.
- Comprehensive and robust risk management & compliance strategies with strong Business Continuity Plans.
- Organisations with good checks and controls in place, such as:
- Compliance function;
- Complaints procedures;
- Investment framework and oversight;
- Call back procedures for phone transfer requests;
- Structured procedures around bank account changes;
- Dual controls.
Is there anything an underwriter wouldn’t insure?
- The policy covers management and operational risks, so this will be an underwriting focus. Some trades are characterised by higher hazard risk profiles and worse experience than the average. Underwriters will necessarily exercise a more cautious approach in certain trades and certain risks within certain trades.
- Newly established industries may need more focus to get a better understanding of the dynamics and risk profile.
- Whatever the risk, underwriters will always try to find solutions.
Why choose MPR?
- Deep experience over many years in all the products we underwrite
- Simple and clearly stated policy language with the removal of ambiguity
- A straightforward, broker focussed, technical and service based proposition
- Strong financial rating
- Comprehensive and specific cover with specific features
- MPR have developed a solution specifically tailored to Investment Managers and includes:
- Separate insuring clauses for Directors & Officers, Professional Liability, Entity investigation expenses and Crime
- Covers available for both the investment manager, their Directors & Officers and the fund(s) and their Directors & Officers
- An additional limit of liability for non-indemnifiable losses
- An additional insuring clause for entity investigation expenses
- A sublimit for mitigation costs
- Social engineering fraud limit
The result is policy language which is clear, and which evolves to accommodate the changing landscape and exposures faced by companies and their directors.
- Mitigation Costs
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- The policy will also provide mitigation costs, which are designed to rectify any wrongful acts before they result in a claim against an organisation.
- Quite often, a speedy response and sensible resolution can prevent a problem from escalating into a costly claim. Having mitigation costs (including fee dispute settlement) allows the insurer to work quickly in a time of need to ensure that the situation is rectified with minimal damage.
- Entity Investigation Expenses
- The policy will also provide legal costs and professional charges for representation at a formal investigative inquiry into conduct by a governmental, regulatory, law enforcement, professional or statutory body with powers to investigate.
What can go wrong?
Allegations of misleading statements and inadequate disclosure of the risks associated with the proposed investment strategy within the fund prospectus.
Investors filed legal proceedings against the investment manager, and its directors alleging multi million pound losses as a result of the high risk investment strategy. Settlement and defence costs in excess of £1m.
An FCA investigation into two individuals in relation to alleged breaches of section 66 FMSA (misconduct for failing to comply with the Statement of Principles for Approved Persons).
Legal representation expenses of £244,000 were paid.
A lot of focus is on the new and emerging areas of risk but much of the value still lies in protecting against offences that have been around for many years.
Whether emerging or existing risks, costs and complexity are rising:
- D&O claims handling costs have tripled in last 10 years;
- The number of claims based on regulatory prosecutions has tripled since 2012;
- FCA enforcement investigations continue to be a focus for the regulator;
- There are new and emerging risks such as environment, social governance, cryptocurrency and data management;
- The law has been strengthened in many jurisdictions.
Regulatory bodies represent a growing risk to all organisations.
It is helpful to know that, if the worst happens, there is a product specifically crafted to accommodate the consequences of these unforeseen and undesirable events. Regulatory investigations can be stressful and difficult.