Hedge Funds, Equity Firms & Investment Advisors | GB&A

Hedge Funds, Equity Firms & Investment Advisors

Venture Capital, Private Equity , Debt funds, hedge funds - the risk landscape changes with each. The variation within fund structures alone; from fee models to differences in PPM’s and investment strategies can greatly shift that risk and the potential for litigation. In few industries is the cost of litigation and the consequence for non-compliance more severe. And the frequency of that litigation and regulatory action is increasing due to new SEC initiatives targeting smaller investment advisors, increased usage of administrative law judges, newly imposed cyber compliance requirements and the DOL imposing new fiduciary standards. Innovations such as the utilization of crowdfunding, analytics, automated trading software and cloud storage pose their own challenges. While these advancements provide great value, convenience and increased efficiency (most of the time), early adoption can come at great risk, as much of this technology and the litigation surrounding it is uncharted water. 

While strong compliance and internal controls are a prerequisite, a well structured insurance program is one of the only ways to afford your company and its directors/officers insulation from that risk. Portfolios in this sector revolve heavily around strong executive (D&O), professional (E&O), cyber and management liability protection. As most financial executives are already aware, these products are not standardized or created equal, the strength of an insurance program is greatly dependent on the capabilities of the broker, requiring careful review, audit and negotiation. Negotiating seemingly small verbiage changes can have significant coverage implications. For example, slightly broadening the bankruptcy carve backs and naming “debtor in posession” as a named insured may mean the difference between gaining (or being declined) proceeds to the policy in the event of a bankruptcy. While many of these negotiations can carry little to no premium, they require a proactive effort on behalf of the broker, which further underscores the importance of partnering with a knowledgable broker. As a boutique agency with broad market access and concentration on professional and executive liability, GB&A is particularly well aligned to meet the insurance needs of companies in the financial sector. 

Risk Profile

The Risk Profile below outlines your company's core exposures. Click to learn more and select your coverages of interest to begin building your insurance portfolio or click "contact us" to be connected with a broker.

  • Commercial Liability & Property

    Commercial liability packages (sometimes referred to as CPP's or BOP's) provide balance sheet protection in the form of financial reimbursement and liability protection in the form of coverage for defense costs and damages resulting from:

    • Claims asserting bodily injury and/or property damage
    • Product liability claims (unless excluded)
    • Advertising Injury such as libel, slander and infringement related claims 
    • Theft and property damage losses for inventory, business property, machinery, etc
    • Loss of business income
    • Equipment breakdown
    • Key Broadening endorsements (Transit coverage, basic cyber, employee dishonesty, ERISA, basic EPLI, and more)

    Due to the fact that endorsements can either broaden and extend coverage or limit/exclude coverage, policies should be carefully reviewed. Seemingly small endorsements such as “selling price” endorsements and business income coverage for dependent properties (such as suppliers, retailers and leaders) can provide substantial coverage enhancements. Due to the advertising risks faced by this sector, it is also often wise to seek coverage through a carrier that has a strong reputation for advertising coverage.

  • Errors & Omissions (E&O) and Directors & Officers (D&O)

    Because professional liability claims and more traditional D&O related claims are so similar and closely related in this sector, most insurance companies combine professional liability and directors and officers insurance on the same policy. This can also help achieve more competitive pricing. Additional coverage components can include crime (to protect against employee theft and dishonesty), employment liability (to protect against claims asserting wrongful termination, sexual harassment, retaliation, failure to promote and more), and Fiduciary liability which provides protection against errors and losses caused to employee benefit plans. While some funds/firms take an all inclusive approach and elect to include these additional coverages, others prefer to preserve policy limits for pure professional and director liability claims. As with all professional and management liability policies, coverage, terms and conditions vary. Careful consideration should be given to whether coverage is included for:

    • Investigations, regulatory and administrative proceedings and resulting fines and penalties
    • Cost of corrections
    • Consequential losses
    • ODL (outside directorship liability) 
    • Are there any hidden “choice of law” or forum clauses that apply foreign law or require coverage disputes to be determined/adjudicated in foreign courts

    Trends increasing the potential for claims include:

    • Traditional fee structures are being challenged
    • Oversight is increasing and regulatory framework tightening
    • DOL’s (department of labor) newly passed fiduciary rule  
    • SEC and law firms are increasing their pursuit of smaller companies and private equity & venture capital firms. 
    • SEC’s increased usage of ALJ’s (administrative law judges) is making it easier to pursue actions
  • Employer's Liability & Workers Compensation

    Workers Compensation insurance is a mandatory coverage for companies with employees (including volunteers, uninsured independent contractors, leased or part time labor). It provides coverage for employees’ wages and medical payments resulting from injuries sustained while “on the job”. Coverages to consider include “broad form all states” coverage and foreign workers compensation coverage (especially important for employees traveling abroad for business). Additional employee related coverages that should be considered include: 

    • Key Man / Key Person Insurance
    • EPLI/Employment liability (protection for the hiring/firing of employees and discrimination/harassment related claims)
    • Employee benefits
    • ERISA/Fiduciary coverage (for the administration of employee benefits)
    • Long term disability
    • Kidnap & Ransom (for employees traveling abroad for business)
  • Cyber Liability & Data Security

    Cyber Liability insurance provides

    • First Party coverage in the form of balance sheet protection for damages sustained by the entity including: lost income and restoration costs, notification and credit monitoring costs, costs related to extortion demands, and more
    • Third Party liability protection for claims and lawsuits arising from: failure to protect from (or prevent) an intrusion or transmission of a virus or attack, regulatory actions, media related liability, claims asserting breach of intellectual property and more.

    Claims can arise from

    • Data Breaches, viruses and unauthorized access 
    • Lost or stolen laptops and lost or stolen paper records
    • Transmission of a virus to others
    • Rasomware and extortion demands
    • Clerical and human errors in opening or transmitting files
    • Order Processing 
  • Crime & Employee Theft

    Crime & fidelity insurance provides protection for the entity against financial losses resulting from crime, theft and dishonest acts committed by employees, executives, independent contractors and other parties. Claims can include theft of money or securities, forgery, alteration, computer fraud, fraudulent invoicing, credit card and funds transfer fraud and more. More modern schemes include social engineering attacks (such as business email compromise, also known as CEO fraud). 

Get (Risk) Managed.

Ready to review your existing insurance program? Interested in setting a reminder for a renewal review? Or simply have a question? We're here to help. We also understand you're busy - let's schedule a time to speak that works best for you. Simply schedule a call and we'll reach out when it's convenient.

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