Archived Insight | November 30, 2020

How Much Fiduciary Liability Insurance Do I Need?

A new multiemployer health fund needed fiduciary liability insurance coverage, and the trustees asked their third-party administrator (TPA) for a recommendation. The TPA suggested us based on their experience working with our insurance professionals on behalf of other multiemployer funds. The trustees found they needed more coverage than they originally thought necessary.

The issue

A big concern for the trustees was having enough financial resources to ensure core benefits for the plan participants. This meant that the trustees had to find fiduciary liability insurance that provided the proper amount of coverage without costing too much. Making matters even more complicated, the trustees discovered they were exposed to other risks after talking with the TPA.

The solution

Businesswoman With Business Team In Conference Room Discussing At a board meeting of the trustees, our broker presented the following solutions to the health fund’s insurance challenges:

Fiduciary liability coverage based on our data: To help the health fund find the appropriate amount of coverage, we compared the fund to others in terms of size, complexity and plan demographics.
ERISA fidelity bond insurance: To help the fund cover losses if employees or plan officials engaged in fraud or dishonesty, we suggested they look into ERISA fidelity bond insurance.
Cyber liability insurance: Given the importance of covering losses from various forms of cybercrime, we advised the fund purchase cyber liability insurance. Some trustee members thought the TPA’s own cyber liability insurance would provide sufficient coverage, but we informed them the TPA’s policy wouldn’t cover privacy counsel, forensic experts and other resources the fund would need in case of a breach.

The result

After careful consideration, the trustees asked for quotes for all three coverages: fiduciary liability, ERISA fidelity bond and cyber liability insurance. Further, they asked for coverage limits higher than the recommendation we provided based on our peer data. Using our proprietary database, it was clear that increased coverage levels were cost effective.

Once the COVID-19 pandemic hit, we made sure to keep the trustees — and all clients — informed about the increase in cyber threats, as many organizations had their employees working remotely. As the fund worked through the recent fiduciary liability renewal cycle, they asked about considering additional coverages, opening the way for adding increased social engineering fraud coverage (another unfortunate necessity with COVID-19) and property and casualty coverages.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.