By CARMELO CASELLA, the vice president and director of corporate insurance for The Bank of New York Mellon
At The Bank of New York Mellon (BNYM), we carefully monitor our professional liability exposure. BNYM is different from a traditional retail, commercial or investment bank, because most of our business units focus on helping other financial institutions around the world. We think of ourselves as a "bank for banks."
We provide critical infrastructure for the global financial markets so mistakes can pose reputation risk. I believe our professional liability and directors and officers liability coverage are the most important coverages here at BNYM. We do so much securities servicing and asset management that we need to be mindful of how errors can cause reputation risk and loss of business.
At our last renewal for professional liability, premiums increased by double digits, capacity shrunk and carriers asked for higher and higher deductibles, even for financial institutions with good loss experiences. I believe if the prices continue going up and competition disappears, it may not be cost effect to purchase this coverage.
BNYM does have an eight figure deductible and carriers would consider taking it up to nine if we allow it. What does $100 million deductible in excess of a $100 million of coverage really do for a company of our size?
Externally, however we are always trying to distinguish ourselves from the rest of the financial sector. But carriers seem to find it a bit difficult to understand that in their eyes we are a financial institution no different from all the others.
Internally, we focus on creating the best communication we can between auditing compliance and operational risk management departments, to understand the risks and to insure these risks the best we can with what is an available in the market.
April 15, 2009
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