We have been talking about business insurance. The passage of the Dodd-Frank Act in 2010 changed the landscape for businesses -- especially financial services companies -- by instituting a de facto incentive for whistleblowers. The heightened risk of an investigation, initiated by an internal complaint or a regulatory inquiry, should prompt business to review their insurance policies. The directors and officers coverage of the old days may not be enough.
In our last post, we discussed the basic coverage under typical D&O policies before Dodd-Frank. For the most part, only individuals were protected, not the business itself. And in an internal investigation, neither personnel nor the enterprise were covered.
At least one insurance company has developed a product that could fill that gap. The policy covers a range of investigations. The investigation may be the result of a compliance hotline call or the response to an SEC communication.
This company's policy is a stand-alone product. That is, the coverage is separate from existing D&O coverage. A claim under the stand-alone policy will not affect the limits under the existing policy. Insurance insiders suggest that a separate investigation policy is the way to go.
The cost, however, can be prohibitive. A blended policy may be more affordable, but, again, the issue of limits will be a factor if there is a claim.
Also, Dodd-Frank has not been in place long enough to tell if the incentives will work. It's hard to know if the investment in additional coverage will be worth the expense. But, it's insurance -- consumers weigh the risk and make the purchase based on that.
Source: PropertyCasualty360.com, "Dodd-Frank & Corporate Investigations," Paul A. Ferrillo, Oct. 20, 2011