* Coverage protects against FDIC clawbacks
* Pays for both legal fees and lost compensation
* Marsh says will not cover illegal behavior
By Ben Berkowitz
NEW YORK, April 21 Insurers are giving bankers
a new tool to fight back against regulators.
Last year's financial reform law allows regulators to seize
up to two years of pay from reckless bank executives, but now
insurers are offering coverage that can reimburse bankers whose
compensation is confiscated.
Insurance broker Marsh said on Thursday it is launching
such a program, which it calls the first of its kind. It did
not name the insurers underwriting the policies.
The policies will not protect bankers who are found to have
committed fraud, but can help executives who claim to be
Marsh said the program is a response to the FDIC's broadly
increased powers under the Dodd-Frank reforms, including the
right to recover pay -- or "claw back" -- from executives who
are deemed to be at fault for an institution's failure.
Even before the FDIC gained those expanded powers, it was
aggressively pursuing cases against bank officials for
crisis-era losses. As of mid-April, cases against 187 people
had been authorized to recover $3.8 billion. [ID:nN15284152]
The FDIC's highest-profile case so far came last month when
it sued Kerry Killinger and two other Washington Mutual Bank
executives who were accused of pushing reckless home loans on
lenders with ultra low rates, while ignoring warnings about the
housing bubble. [ID:nN17230252]
Marsh's new policy is meant to be an attachment to a
company's existing directors and officers insurance, which
generally does not cover lost pay from asset seizures.
"Typically policies have excluded this compensation
element," said Mark Cuoco, managing director of Marsh's
financial and professional liability practice. "It's just hard
for the insurance companies to get their arms around what their
exposure is to compensation."
As with any other insurance, policies have to be
underwritten -- in other words, banks cannot just call and sign
up, the insurers will have to vet them and the potential
policyholders to make sure they are appropriate for coverage.
"Fraud is not insured. The policy is intended to protect
and help individuals, executives who find themselves in this
situation, and it basically provides a resource for them to
hire attorneys and possibly give them some indemnification for
these clawbacks, again if they're insurable under the law,"
"The basic premise, of course, (is that) you're not going
to be able to insure something that the law says is not
insurable," he added.
Marsh is a unit of Marsh & McLennan. (MMC.N)
(Reporting by Ben Berkowitz, additional reporting by Dave
Clarke in Washington, editing by Matthew Lewis)