Insurance policies are commonly used to protect businesses from liability risks associated with operations, as covered claims usually address the loss from incidents of property damage, bodily injury, errors and omissions claims, and commercial auto accidents. However, within the different policies that cover these exposures, there is usually a common exclusion for loss incurred during illegal or dishonest activities. These exclusions become the main concern for those that work in areas of finance or brokerage services.
As a way to protect both consumers and companies, the SEC has mandated that investment houses, banks, and other forms of financial services carry a blanket bond insurance coverage. According to the experts at Financial Guaranty Insurance Brokers, Inc., this form of coverage is also referred to as a fidelity or blanket fidelity bond. Areas of protection afforded from this coverage include:
- Trading fraud
- Intellectual theft
- Material theft
The Key Difference
A blanket bond is important for financial institutions not just because of the SEC mandate, but because of the key difference, it holds when compared to traditional insurance. A blanket bond is able to protect against loss that is linked to illicit activities occurring within the company. Traditional insurance generally only protects from external occurrences of loss.
Internal threats, such as those that stem from employee activity, are the greatest areas of concern for financial institutions. A blanket bond minimizes the financial backlash that could occur if a claim is filed.