Why Civil Monetary Penalty Insurance is Necessary

In recent decades, bank directors and officers have increased their efforts to invest in coverage meant to cover themselves against civil money penalties (CMP) brought against them. These fines tend to be related to regulators imposing on individuals and/or institutions for possible wrongdoing, especially in the years following the global financial crisis. In most cases Civil Monetary Penalty Insurance is offered under the directors’ and officers’ liability, warding off potential threats.

CMP coverage is a standalone policy purchased by the director or officer of a financial institution. This insurance is meant to cover his or her own liability and not the bank’s. Investing in this type of insurance is an additional piece of coverage that financial institution directors and officers should thoughtfully consider.

Covering The Basics

Civil Monetary Penalty Insurance coverage can be purchased with a deductible of $500, $1,000 or zero dollars with limits of $100,000 or $250,000. While the coverage comes with many benefits, it does not cover defense costs in the event that someone brings allegations against a director or officer. While this is helpful if the fallout from court proceedings results in paying fines, individuals will need to have another way to pay for defense.

Why Coverage Is Still Important

An article from Bank Director points out that CMPs exacted against individual bank directors and officers have been on the rise, especially since the Great Recession. In 2015, the average CMP increased to $79,980, from $67,646 in 2014, with the median amount skyrocketing from $15,000 to $50,000. Based on these statistics there’s a continuing risk for potential vulnerability to civil money penalties for bank officials.

Products like Civil Monetary Penalty Insurance are available that meet certain credit and leverage ratios. Out of the 108 lawsuits filed by the FDIC, 85 have been settled, representing more than 75% of all failed bank lawsuits. The vast majority of these paid penalties—resulting in more than $675 million—were funded by the directors and officers insurance the banks already had reserved.

Even though banks are still paying for the financial crisis in the last decade, having CMP in place has resulted in resolved lawsuits and a restoration of the banking industry and its directors and officers, albeit still in need of healing.

About Financial Guaranty Insurance Brokers

Since 1983, Financial Guaranty Insurance Brokers has distinguished itself as a provider of Professional Liability, Cyber Liability, and Crime insurance products for entities of all types. To receive timely, personalized service from a knowledgeable and experienced staff, call us today at (626) 793-3330 to speak with one of our professionals.

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