Financial Institutions (FI) Insurance

A bank faces the theft of funds

Travelers insured a bank. One of the bank’s customers routinely made quarterly payments to a third party of amounts ranging from £350,000 to £500,000. In respect of each payment, a director at the firm would email the bank, setting out instructions for the transaction in a pre-agreed format.

The insured received a set of instructions requesting it to make multiple payments.

Even firms with controls in place can be the victims of fraud

The request for payment was discovered to be fraudulent, though not until after approximately £450,000 had been transferred. This kind of situation is increasingly common.

Sophisticated fraud requires sophisticated protection

As fraud becomes increasingly complex, financial institutions must have protections in place to prevent it, investigate it and minimise the damage it can cause. Once the insured notified Travelers of its loss under the terms of its crime policy, we paid the legal costs it incurred when investigating the extent of its responsibility for the fraud. We then reimbursed the insured after it reached a settlement with the customer.

An investment manager must defend against a hack into its client database

Travelers insured an investment manager based offshore. The insured’s IT team noticed some unknown files on the company server, following which a further review by the IT team revealed that a third party had obtained access to the insured’s computer systems. The insured was concerned about the theft of money or client data, as well as the risk of a subsequent regulatory investigation.

Correct cyber cover is key

Having the right cover helped our insured investigate the problem and get back to business quickly. Our insured’s FI insurance policy, underwritten by Travelers, included the option of cover for forensic investigation following discovery of a data security breach. Fortunately, the investigation had isolated the threat at an early stage and there had been no theft of money or data from the insured or any of its clients.

A fund manager based offshore is defrauded by a broker

Travelers insured a fund manager based offshore that managed funds on behalf of segregated portfolio accounts. The insured was responsible for making and executing all investment decisions on behalf of the funds. The insured appointed a third-party execution broker to carry out trades on its behalf, then transferred sums exceeding US$10 million to this broker for trading. On a regular basis, the broker sent electronic statements of account back to the insured to show the results of the trades and profits/losses, and the fund manager made intermittent withdrawals.

Some years after appointing the broker, the insured heard rumours suggesting the broker was involved in fraudulent activities. The insured demanded repayment of the balance of the funds (together with the profits from the trades), but, to its horror, was told the broker could not pay. It was discovered that the money had been stolen and the broker’s principal had vanished. There was no realistic chance of any recovery.

Knowing how to spot fraud doesn’t prevent large losses, but it can help mitigate the risks

A rising global awareness of fraud, a more robust response rate and greater clarity around what fraud actually means allowed insurers to act quicker to help the insured.

Having the right cover protected the fund manager’s business

Fortunately for the insured, Travelers insured both the fund manager and the funds for crime losses. After confirming that the money could not be recovered, Travelers reimbursed the funds for their losses.