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Chartis Inc.'s Investigation Edge insurance policy is a response to a significant problem facing companies: The daunting costs, which can easily amount to millions of dollars, associated with being the target of securities investigations, whether it be by the U.S. Securities and Exchange Commission, the Department of Justice, the FBI or other regulatory authorities.
“It's generally well-known” that while entities could get coverage for securities claims, “investigations coverage was something that was just not available in the marketplace” before Investigation Edge's introduction, said Rob Yellen, New York-based chief underwriting officer for Chartis financial lines in the U.S. and Canada.
The product's value in filling this need has earned it a 2012 Innovation Award from Business Insurance.
According to Chartis, Investigation Edge, which was introduced last March, is the only stand-alone product designed to cover an entity's costs associated with responding to informal inquiries and investigations by securities regulators. Directors and officers liability coverage does not extend to cover these costs.
The product was developed in response to recommendations from Chartis' advisory board of risk managers, its expert securities panel counsel advisers, and its broker partners, according to the insurer.
With Investigation Edge, “all it takes in the first instance is a call from the SEC and you retain panel counsel to trigger coverage,” Mr. Yellen said. The company does not have to be identified as a target, be charged with wrongful acts, or have had a specific person identified.
Furthermore, coverage kicks in even if the company self-reports suspected violations to a regulatory authority, he said. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, if a company fails to self-report suspected violations, whistle-blowers may be able to collect monetary rewards of between 10% and 30% of the monetary sanctions the SEC subsequently collects, provided the action results in monetary sanctions of $1 million or more.
Mr. Yellen said there is a minimum retention of $500,000 for the annual policy, which can go higher “for somebody who is price conscious.” There is a 15% co-insurance, and up to $25 million of limits is available. Chartis does not disclose premiums.
One of the advantages of the policy is that it is a relatively concise eight pages long, which reflects Chartis' approach with other coverage forms as well, said Mr. Yellen.
“We have endeavored to apply a minimalist approach,” he said. This makes it easier for risk managers “to confirm they got what they thought they were getting” and brings efficiency to the process, Mr. Yellen said.
The response, which has included articles in the media, has been positive, Mr. Yellen said. There has been a lot of interest by risk managers, who recognize the “value proposition” Investigation Edge presents, he said.
“We expect that this product will continue to be a solution that people will look to for securities investigation costs, and as time moves on, we think it's something that companies more and more will adopt as a regular part of their risk management program,” said Mr. Yellen.
Products and services ranging from an international insurance information database to a book on financial risk management have been recognized with 2012 Innovation Awards from Business Insurance.