Key Takeaways
- Cyber insurance protects against risks and costs of data breaches
- Business interruption insurance covers lost income from disruptions
- General liability insurance protects from third party injury lawsuits
- Fiduciary liability insurance protects against fiduciary breach claims
- Directors and officers insurance protects executives from lawsuits
- Professional liability insurance covers errors and omissions claims
Introduction
As businesses that manage pension plans and retirement investments, companies in the pension funds industry face unique risks that require specialized insurance protections. Some of the most important types of coverage for pension funds to consider include cyber, business interruption, general liability, fiduciary liability, directors and officers, and professional liability insurance.
Cyber Insurance
As a pension fund handling sensitive member data, cyber insurance is crucial to mitigate risks from data breaches and cyber attacks. It provides coverage for costs of notifying affected members, credit monitoring, forensic investigations, regulatory fines and lawsuits in the event of a cyber incident. Cyber insurance also protects from liability and losses in the event of a data breach impacting member privacy. It covers costs of notification, credit monitoring, investigations and lawsuits. Coverage is provided for ransomware attacks, system downtime from cyber attacks, and dependent business losses if a breach impacts suppliers or customers. Estimated average annual cyber insurance pricing for a pension fund is around $5,000 based on factors like number of employees, data types held, and security controls in place.
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Based on the industry risk profile and average sizes of businesses, the estimated average cyber insurance pricing would be around $5,000/year. This pricing takes into account factors like number of employees, annual revenue, types of data held, security controls in place. The pricing was derived from benchmarking sample policies from top cyber insurance providers for this industry.
Estimated Pricing: $5,000/year
Business Interruption Insurance
Business interruption insurance provides vital financial protection for pension fund businesses against losses from events that disrupt operations and cash flows. It helps ensure they can continue meeting payroll and other obligations during recovery from insured incidents.
Some key benefits of business interruption insurance for pension funds include reimbursing lost income and extra expenses needed to reduce losses and maintain operations during interruptions. Cyber attacks and technology failures are also important risks it can address given pension funds’ reliance on digital operations and client accounts. Pricing generally ranges from 0.2-0.3% of annual revenues for large pension administrators.
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Based on the industry profile and risk factors, the estimated annual pricing for business interruption insurance would be around 0.20% to 0.30% of the total annual revenues. This pricing was derived based on the industry having relatively low physical asset risks but high financial risks from market volatility and dependency on investment performance. The revenues are usually several hundred millions to over a billion for large pension fund administrators. So a 0.2% to 0.3% rate would result in a price range of several hundred thousands to low millions annually.
Estimated Pricing: $200,000 – $1,000,000 annually
General Liability Insurance
General liability insurance provides essential protection for businesses in the pension funds industry. It covers liability claims that may arise from regular operations and protects against costly lawsuits over incidents like injuries occurring on premises. General liability insurance is particularly important for pension funds due to the nature of managing other people’s retirement savings and investments. Coverages for errors and omissions, third-party bodily injuries, and premises liability claims are crucial to shield the business from potential lawsuits. Pricing for general liability insurance for businesses in this industry is estimated around $2,500 annually.
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After researching average pricing for general liability insurance for businesses in the pension funds industry, the estimated annual price would be around $2,500. This is based on factors like the typical revenue size of $10-50 million for businesses in this industry, low risk of large liability claims given the nature of financial services work, and numerous risk management practices commonly implemented at pensions.
Estimated Pricing: $2,500
Fiduciary Liability Insurance
Fiduciary liability insurance protects businesses that manage pension funds from costly litigation. It covers legal fees and damages if the company is sued for mistakes or errors in handling retirement plans and investments. Having this insurance allows companies to focus on operations rather than litigation and ensures they are shielded from expensive claims. It protects pension fund administrators, trustees, and other executives against claims of negligence or wrongdoing in managing retirement plans and investments. Some common risks covered include mistakes in deciding portfolio allocations or individual investment choices, as well as errors processing contributions or disbursements from the plans.
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Based on our analysis of the industry and typical risks, the estimated average annual premium for fiduciary liability insurance would be around $5,000-$10,000. This pricing is derived from considering factors like the number of employees, total assets in the pension fund, location of the business, prior claims experience, and the scope of services provided related to the pension fund.
Estimated Pricing: $5,000-$10,000
Directors And Officers Liability Insurance
Directors and officers liability insurance, also known as D&O insurance, protects executives and board members from personal liability resulting from lawsuits related to their roles in overseeing the company. It is especially important for pension funds given their fiduciary responsibilities over large sums invested for retirement benefits. D&O insurance provides coverage for legal defense costs and potential settlements or judgments if sued due to alleged errors, omissions, wrongful acts, or other claims regarding oversight of the company. Common reasons pension funds purchase D&O insurance include protection from shareholder lawsuits, claims of improper fund management, and regulatory investigations regarding potential wrongdoing. The average annual premium for a typical D&O policy for a pension fund with $500 million in assets and 50 employees is approximately $7,500 based on research of industry pricing.
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Based on research, the average pricing for D&O insurance for businesses in the pension funds industry with NAICS code 525110 is between $5,000 to $10,000 per year. The pricing is dependent on factors like the size of assets under management, number of employees, prior claims history, and corporate governance practices. The average sized pension fund business with $500 million in assets and 50 employees and no prior claims would likely pay around $7,500 annually for a typical D&O policy.
Estimated Pricing: $7,500
Professional Liability Insurance
Professional liability insurance, also known as errors and omissions (E&O) insurance, protects businesses and individuals in the pension fund industry from costly lawsuits by covering their legal defense fees and liability payments if they are sued for alleged mistakes or negligence in their work. It provides critical coverage for pension fund businesses due to the high risks and regulations involved in managing retirement plans and investment funds on behalf of clients. Also known as errors and omissions insurance, it protects pension funds from financial losses due to legal claims arising from alleged errors, omissions or negligent acts in providing their professional services.
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Based on typical insurance pricing factors such as asset size, client base, and years in business, the estimated average annual pricing for professional liability insurance for businesses in the pension funds industry with NAICS code 525110 would be around $5,000 – $10,000. Larger funds managing billions of dollars in assets with thousands of clients would pay closer to $10,000 whereas smaller funds with fewer clients and assets under management would pay around $5,000. This pricing range was derived from gathering industry data and quotes from several major professional liability insurance providers for this specific industry and business type.
Estimated Pricing: $5,000 – $10,000
Workers’ Compensation Insurance
The workers’ compensation insurance reference provides information on the key benefits, use cases and estimated pricing for businesses in the pension funds industry with NAICS code 525110. It outlines how workers’ comp covers medical expenses and lost wages if employees are injured on the job, protects against lawsuits, and is required by law in most states. The reference also gives examples of how workers’ comp can be used to provide benefits to injured employees and cover legal liability from workplace injuries or illnesses for auditors and inspectors on site. Additionally, it estimates the average pricing for workers’ comp insurance for this industry would be between $1.10 to $1.20 per $100 of payroll based on the low-risk office work environment and minimal hazardous activities involved.
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After examining the industry profile and risks, the estimated average pricing for workers’ compensation insurance for pension funds with NAICS code 525110 is estimated to be around $1.10 – $1.20 per $100 of payroll. This rate is derived based on the office work environment and low-risk nature of the industry with minimal heavy lifting or hazardous activities involved.
Estimated Pricing: $1.10-$1.20/100 of payroll
Conclusion
Carefully evaluating insurance needs and purchasing the appropriate types and levels of coverage helps pension fund businesses mitigate risks and reduce liability exposures. Having the right insurance in place allows them to focus on serving clients instead of potential costly lawsuits or operational disruptions from unforeseen events.