Why Review Your Bank’s Insurance?

Jan 17, 2014 | Newsletters

Comprehending Your Insurance

All financial institutions’ bond applications and/or directors’ and officers’ liability applications ask if your directors “review” the insurance at least once a year, says Hank Bahr. A CPA audit will include questions to be sure the board “reviews” the insurance once a year as well. Unfortunately, this “review” usually consists of the bank board looking at a list of insurance policies with their policy limits. Unless the board member happens to be in the insurance business, most directors have no idea what they are looking at.

Does the bank’s insurance program cover at least the Bank’s major exposures? Are the limits within industry norms? Is the premium competitive? The insurance agent may be able to answer these questions, but, since they are receiving income from the sale of these products, they are not exactly “unbiased.” The insurance agent might even be a board member, which certainly has the appearance of a conflict of interest for both parties. At least, the Banking Department of the State of Georgia “highly recommends” (read “requires”) an independent outside review of a banks’ insurance program every three years.

Since you need to do the insurance review anyway; why not do a thorough job? Get someone who specializes in bank insurance who does not sell it, to review your program.