PERIODICALLY EVALUATE YOUR D&O COVERAGE AND CARRIER
By Mike Kelley, president of Community BancService Corporation, Inc (CBSC), the business services subsidiary of CBAI.
My son, a college student, called home one day upset that a rock had cracked his windshield. I called my insurance agent who informed me that six months earlier I had cancelled the comprehensive coverage in an effort to reduce my premium. He said comprehensive coverage would have covered the cost to repair the damaged windshield. My agentsaid, “Don’t be penny-wise and pound-foolish,” and advised that I reinstate the coverage. I did and then paid out-of-pocket to replace the cracked windshield.
A week later, my son called again to inform us that a huge deer ran across the Interstate and slammed into his car. Fortunately he escaped injury, but the car was a total loss. The following day, my agent informed me that a collision with a running animal is not covered by collision insurance; it is covered by comprehensive insurance. Fortunately, the claim was quickly paid, and we were able to purchase a new car within a week.
To this day, my family is convinced the rock that cracked the windshield the week before was Divine Intervention. I learned several lessons from this experience. I can now recite the most important provisions of both my homeowners’ and auto policies. I also learned how important it is to work with a top-notch insurance agent and a top-rated carrier.
My point in telling this true story is that if you are a bank officer or director, I recommend that you determine just how well your bank is insured for the next”collision” and verify the financial stability of your carrier.
Given the harsh regulatory examination environment today, it is especially important for community bank board members to review their D&O liabilityinsurance policy for adequacy of coverage and the financial condition of the carrier.Unfortunately, directors often presume that D&O coverage is a commodity whereby the carrier with the lowest price should win the bid and all carriers are the same. Such presumptions are not accurate because there can be significant differences in the scope and quality of D&O coverage among carriers.
Community bank boardsof directors should hone in, first and foremost, on the credibility and financial integrity of the carrier. As we have learned from the mortgage melt-down, rating agencies don’t always render accurate assessments of financial health. Sometimes it pays to dig a little deeper.
The following chart compares the AM Best Ratings and the financial performance of five of the more prominent bank D&O carriers serving Illinois.
Community bankers rely on insurance agents to advise them on D&O risks and insurance solutions. Not all agents or brokers have the requisite expertise in the specialized market for community banks. The professionals at Nicoud, CBAI’s preferred partner for bank-related insurance services, possess that expertise. Patti Tobin, John Immordino, and Jim Hillestad have 75 years of combined experience helping community bankers assess coverage gaps and offer the best carriers and policies to insure that your bank is covered in the event of a claim.
If you have any questions about the financial stability of your current carrier, or to arrange a no-obligation assessment of the adequacy of your bank’s insurance coverage, please contact Patti, John or Jim at 217-546-6900.