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A Look at Factors Affecting Fiduciary Insurance Premiums

Fiduciary Rules and Practices

The risks entailed in fiduciary duty gave rise to fiduciary insurance. But what affects the premiums charged for that insurance? A recent report gives an inside look at what fiduciary insurers think about that. 

In “What Drives Fiduciary Liability?” Aon reports on what 12 fiduciary insurance carriers consider the biggest factors affecting what they charge for the coverage they provide. In its July 2021 Client Alert, Aon highlights the importance of fees, committee minutes, employer stock and the role of environmental, social and governance (ESG) options.

Fees 

An overwhelming majority—88%—of the fiduciary insurance carriers told Aon that whether the investment committee does periodic plan administration fee benchmarking reviews has a significant effect on insurance premiums. A strong majority—75%—cited plan use of mutual funds generating revenue sharing or sub-transfer agency type revenues, and 63% said mutual funds using retail share classes were a major influence on premiums. And almost equal percentages of carriers assessed the effect on premiums of having an investment advisor on retainer as either significant, small or nothing. 

Committee Minutes

Opinions varied on taking formal committee minutes. Two-thirds said that performing that function would have a small effect on premiums; one third said they thought the effect would be significant. But their view of the impact of taking minutes on premiums changed if they were taken by an outside advisor or by outside legal counsel; half said the effect then would be small, and half said that there would be no effect at all. 

Employer Stock 

When there is no cap on investment limits, 88% of respondents considered employer stock in defined contribution plans as having a significant effect on premiums; however, just half held that view if there was a cap.

ESG Options

More than 60% of the fiduciary insurance carriers told AON that ESG options have no effect on premiums; almost 40% said the effect was small. AON attributes this to the perspective the federal government adopted concerning ESG in 2021, as well as generally low asset levels involved.