Risks associated with fiduciary duty have given rise to fiduciary insurance. But what affects the premiums charged for this insurance? A recent report provides insight into what fiduciary insurers think on this subject.
In “What motivates fiduciary responsibility?Aon reports what 12 trust insurance companies consider the most important 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 actions and the role of environmental, social and governance (ESG) options.
An overwhelming majority (88%) of fiduciary insurance companies told Aon that the fact that the investment committee conducts periodic benchmarking reviews of plan administration costs has a significant effect on premiums. insurance. A strong majority (75%) cited the use of income-generating mutual funds of the revenue sharing or secondary transfer agency type, and 63% said mutual funds using share classes retail had a major influence on premiums. And nearly equal percentages of carriers rated the effect on premiums of having an investment advisor on fees as significant, little, or no.
Opinions varied on the writing of official committee minutes. Two-thirds said that performing this function would have little effect on bonuses; a third said they thought the effect would be significant. But their perspective on the impact of minute writing on bonuses changed whether they were written by an outside advisor or by outside legal counsel; half said the effect would then be small, and half said there would be no effect at all.
When there is no cap on investment limits, 88% of respondents considered that the employer’s actions in defined contribution plans had a significant effect on premiums; however, only half shared this view if there was a cap.
Over 60% of fiduciary insurance companies told AON that ESG options had no effect on premiums; almost 40% said the effect was small. AON attributes this to the federal government’s perspective on ESG in 2021, as well as the generally low asset levels involved.