The State of the Fiduciary Liability Insurance Market
You may have noticed an increased focus on fiduciary liability as it relates to corporate defined contribution retirement plans and have some concerns. For a number of reasons, insurance carriers are in the midst of reassessing how they underwrite fiduciary liability insurance and the rates they charge for the perceived increase in risk. Recently, you may have seen:
Your fiduciary liability insurance policy rates increase or your renewal or outright declined. There are a couple of things at play: Increased litigation and higher perceived risk by the carriers, and/or
New underwriting requirements—specifically the completion of an excessive fee questionnaire.
According to our MMA Business Insurance Q3 State of the Marketplace Report , there has been an 80% increase in ERISA-related litigation, which is driving rates. Because of this, carriers are implementing new underwriting requirements that can be confusing for clients.
To help you better understand the buzz around fiduciary liability insurance and what actions you might want to consider, we’ve compiled a few of the most frequently asked questions and our responses.
What is changing about the fiduciary liability insurance policy renewal process?
Insurance carriers have responded to the enhanced risk stemming from increased litigation and monetary settlements from fiduciary breaches by increasing policy rates (15–20%) and implementing stricter underwriting procedures for companies sponsoring defined contribution retirement plans. In the underwriting process, a growing number of carriers have implemented questionnaires tied to the administration of the retirement plan. These questionnaires can be confusing. Inaccurate or unclear responses can lead to even higher rate increases or renewal declination.
My company’s fiduciary liability insurance policy is such a small expense and not something I’ve ever worried about. Why should I care about it now?
In comparison to the rest of your business insurance package, your fiduciary liability insurance policy should remain a small expense, but the increase in litigation, audits, and now insurance premiums is an indicator that the trend of heightened scrutiny on retirement plans is here to stay.
Being a fiduciary means you are personally liable for all the decisions you make related to your company’s ERISA-governed retirement plan. With litigation and audits increasing, it’s important to ensure the fiduciary processes and documentation procedures for your retirement plan are solid so your risk (and rates) remain low.
If ERISA scrutiny has increased so much, I don’t want to rely on an insurance policy as my only source of defense. What can I do?
Although you can't prevent being sued, you can build a solid defense in case you find yourself in that situation as a fiduciary. Having a documented and executable process is critical. It's the best, and really only, defense you have as a fiduciary to retirement plans that fall under ERISA scrutiny.
Nearly all lawsuits today focus on fees, investments, and the attention (or lack thereof) paid to these areas by the fiduciaries to the plan—specifically the plan sponsor and its plan committee. A sound process involves reviewing the fees paid from plan assets to the providers on a regular basis. Although that "regular basis" is not specifically defined, the best practice is to benchmark against industry averages each year and conduct a more formal request for information/request for proposal process every 3–5 years. This process should be more involved than simply comparing the cost of each provider but should also compare the amount of fees paid for the level of services provided. A plan is not required to pay the lowest cost. Rather, a plan should pay a reasonable fee for services rendered.
In addition to regularly reviewing fees, plan fiduciaries should review their investment lineups at least annually. Recent litigation suggests the presence of a number of good investment options doesn't relieve fiduciaries of their duty to weed out bad or expensive funds.
Finally, document the plan committee's discussions and actions taken (via meeting minutes and supporting documentation), as these records will do the talking for you in your defense.
How we can help
Fiduciary liability insurance should be viewed as a complement to your ERISA bond, directors and officers coverage, and employee benefit liability coverages. A well-rounded liability insurance package would include all these coverages as each addresses different risks.
Being a part of the world’s leading global risk management organization, Marsh McLennan Agency is uniquely positioned as a comprehensive risk manager to assist our clients in working with carriers. We ensure our clients have a best-in-class fiduciary liability insurance policy in addition to the peace of mind that comes with our deep experience in helping implement fiduciary risk-mitigation processes.
For more help understanding your fiduciary liability coverages or for a complimentary review of your plan and fee benchmarking report, contact your MMA representative today, or use this link to get in touch.
