When brainstorming potential losses that might require a bank to purchase an insurance policy, the first one to come to mind is robbery. However, there are actually some other more common commercial bank insurance risks that managers must deal with. Here are three of them.
Regulatory Non-Compliance Claims
Banks must abide by federal and local laws or face serious consequences. Here are some examples of banking policies and actions that regulations legislate:
- Interest rates
- Privacy and disclosure
- Fraud prevention
- Money laundering
- Loans to individuals representing lower-income populations
Claims of Unscrupulous Practices
Individuals and organizations unhappy with the service they receive from a bank often file lawsuits claiming unfair practices. These might include claims that loans were denied to people based on race or that certain lending practices were predatory.
Errors and Omissions
No matter how well you train your employees, they will still make mistakes. Errors and omissions occur when they accidentally do things such as make wrongful transactions or erroneously begin foreclosures or similar actions due to perceived account delinquencies.
Banks can avoid many of these three types of claims by writing good policy statements and carefully supervising operations. Even unfounded claims cost money to defend in court, though, so it is important to have adequate insurance to cover costs.