Summary: Because of the size and nature of the risks involved, financial institutions do not insure their crime exposures with the same standard forms employed by other types of commercial insureds. Instead, financial institutions use financial institution “bonds” that offer a multi-coverage approach to employee dishonesty and other crime exposures faced by this class of insureds. The basic coverages available under the financial institution bond are fidelity (employee dishonesty), on premises, in transit, counterfeit currency, forgery or alteration (optional), and securities (optional). The discussion reviews the background and eligibility for the various types of financial institution bonds.
Topics covered:
Types of Financial Institution Bonds/Eligibility
Standard Form No. 14 for Brokers/Dealers
Standard Form No. 15 for Finance Companies
Standard Form No. 23, Credit Union Blanket Bond
Standard Form No. 24, Financial Institution Bond
Background
The term “blanket” remained part of the language of the financial institutions insuring industry, particularly in the title of various forms, such as “bankers blanket bond” or “stockbrokers blanket bond.” As newer versions of the policies are introduced, the word blanket is being phased out because of its modern connotation of “all-encompassing,” rather than “multi-line.” The most common policy, Standard Form No. 24, is called the “financial institution bond” rather than the “bankers blanket bond.”
Standard financial institution bonds are under the jurisdiction of the Surety Association of America (SAA). The SAA is a bureau that sets rates and administers standard forms much in the same manner that Insurance Services Office (ISO) operates in the property-casualty field. In addition, the SAA has responsibility for coverage forms A (employee dishonesty) and B (forgery and alteration) in the 1986 standard commercial crime program.
Coverage
Financial institution bonds are used to provide the crime portion of a bank's or other financial institution's insurance program. The basic bond provides fidelity, on premises, in transit, and optionally, forgery and alteration, securities, and counterfeit currency coverage under a single limit with one deductible. When the optional coverages are selected, they are subject to their own internal limits, which are a part of the overall limit. Various “riders” or endorsements are available that extend additional coverages, or tailor the bond to a particular situation; for example, to provide unauthorized computer access coverage to a bank's electronic funds transfer system (EFTS). See Financial Institution Bond, Standard Form No. 24 for a comprehensive discussion of the standard financial institution bond.
Types of Financial Institution Bonds/Eligibility
There are standard bonds for different kinds of financial institutions. Following is a comprehensive listing of financial institution bonds under the jurisdiction of the SAA, along with eligibility notes. Some of the more commonly used bonds are discussed in detail in the pages that follow.
Standard Form No. 14 for Brokers/Dealers
There are seven classes of insureds eligible for form 14: (a) stockbrokers or business houses engaged principally in the management of or dealing in securities listed on recognized stock exchanges, or in unlisted securities (not to be issued to any such concern engaged in any other form of financing such as finance companies, dealers in mortgages or commercial paper, or note brokers); (b) stock exchanges; (c) securities investors protection corporation; (d) investment bankers and investment trusts (but not investment companies licensed under the Small Business Administration Act or Real Estate Investment Trusts); (e) mutual funds (but not including non-employee sales representatives or sales organizations), foundations and endowment funds; (f) commodity brokers who are members of a recognized stock exchange the rules of which require that all members carry the bond required of stockbrokers; and (g) by rider, stockbrokers operating on a partnership basis.
Standard Form No. 15 for Finance Companies
There are six classes of insureds eligible for this policy: (a) finance companies the majority of whose business is financing paper for and through dealers, and investment or finance companies licensed under the Small Business Administration Act; (b) small loan companies (excluding pawn brokers and factors) including chattel loan companies and benevolent, charitable, prudential, or remedial loan associations, and industrial loan companies in the state of Washington; (c) mortgage bankers and dealers in mortgages (but not fiscal agencies representing another in the servicing of mortgages, etc.), dealers in commercial paper and note brokers; (d) title insurance companies principally engaged in the mortgage business; (e) holding companies that do not operate the business under their control, but merely act as managers of the stocks and securities in their custody; and (f) real estate investment trusts.
Standard Form No. 23, Credit Union Blanket Bond
Written for credit unions, mutual benefit associations and remedial loan associations in Connecticut , provided they do not grant or extend accident, health, death, or burial benefits to their members. Also written for National Credit Union Share Insurance Fund.
Standard Form No. 24, Financial Institution Bond
Form 24 is the most commonly used financial institution bond. Four classes of insureds are eligible for the use of form 24: (a) national banks, state banks, and trust companies; (b) American agencies of foreign banks, cooperative credit associations of Nebraska, industrial banks, and Morris plan banks; (c) title insurance companies that act as trust companies or that accept deposits for savings or checking accounts; (d) federal institutions, such as the Federal Reserve Banks, Federal Deposit Insurance Corporation, Joint Stock Land Banks, Federal Home Loan Banks, and Federal Land Banks; (e) savings banks, by rider; and (f) by rider, savings and loan associations, cooperative banks in Massachusetts, and homestead associations in Louisiana.
Standard Form No. 25, Insurance Companies Blanket Bond
Written for insurance and reinsurance companies of all kinds, including life insurance companies, self-insurance and risk retention groups and title insurance companies (doing principally a title insurance business)
Standard Form No. 28, Excess Bank Employee Dishonesty Bond
This bond is used in conjunction with several of the financial institutions bonds to provide excess employee fidelity coverage.
Combination Safe Depository Policy for Financial Institutions
Written for financial institutions providing safe deposit box facilities.