Financial lines
A family of insurance lines covering the legal, financial and reputational risks of companies and their executives, including D&O, professional indemnity, crime and transaction liability.
Financial lines, an English term now in common use across the global market, are the classes of insurance that cover legal, financial and reputational risk rather than physical damage. The family splits into complementary sub-classes. Directors' and officers' liability, known as D&O, protects individuals in management positions against personal liability claims. Professional indemnity, known as E&O or PI, covers the errors and omissions of service providers in their work. Crime insurance covers internal and external malicious acts, including misappropriation. Financial institutions liability covers the risks specific to banks, asset managers and securities firms. Finally, warranty and indemnity insurance, known as W&I, protects mergers and acquisitions against inaccurate seller representations. These classes are highly cyclical and long-tail, and they depend on the courts more than on physical hazards. They serve as a barometer of the litigation and regulatory climate, especially in the United States, where social inflation and nuclear verdicts keep pushing costs up.
Textbook case: an asset manager is sued by aggrieved investors who allege that its executives concealed information about the valuation of certain funds. The claim engages at the same time the D&O policy of the corporate officers, for their personal liability, and the financial institutions policy, for the company's liability. In parallel, the professional indemnity policy covers the management errors committed by the portfolio managers. The same loss thus hits three branches of financial lines, and raises the question of the boundaries between covers.
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