Insurers and brokers said that banks need to take atleast covers that are five to ten times their current limits.
Even as the full extent of the fraud at Punjab National Bank (PNB) is being ascertained, bankers are leaving no stone unturned to ensure that liabilities arising out of their employees' misdeeds are covered by insurance. There is an increase in the demand for higher limits and specialised covers from insurers.
Amit Agarwal, director at JLT Independent Brokers, said that that they have received queries from 5-7 banking clients who have sought more information on these covers and want to cover these new-age risks.
“Typically, public sector banks have been buying asset insurance and on liability they have been typically buying D&O policies where the limits that they buy are phenomenally insignificant. On the bankers’ indemnity policy side, the way banking is done has significantly changed from the earlier times, so old policies may not cover new-age risks,” Agarwal added.
The PNB incident involved diamond merchant Nirav Modi colluding with some employees to get loans without collateral. The size of the scam is currently believed to be around Rs 12,700 crore.
Sources said that several PSU banks have only taken covers of between Rs 2 crore and Rs 10 crore for employee frauds, which is grossly inadequate.
Many instances of claims have been reported but not paid because they arise from new-age risks. Agarwal said that some larger public sector banks are in the process of buying cyber policies.
A large private sector general insurance company has been in talks with a few public sector banks for increasing the size of the bankers’ indemnity policies and also add systematic frauds perpetrated by employees using internal systems.
Subramanyam Brahmajosyula, Head - Underwriting & Reinsurance, SBI General Insurance said that while bankers' indemnity policies do cover criminal and dishonest acts by employees, either on their own or in connivance with others, in India, most banks have relied on their own audit or risk management functions to manage such risks, and insurance may offer nominal protection.
He added the limits for covering such contingencies tend to be a relatively lower sum insured, a few crore rupees, which would be inadequate if the quantum involved is higher.
The Indian market is usually divided into multiple buckets including public sector banks, very larger private banks and other private banks. While the larger private banks have taken adequate covers, industry players said that the smaller and large players in the public sector bank space have not taken adequate covers commensurate to their risks.
Sanjay Datta, chief-underwriting, claims and reinsurance, ICICI Lombard General Insurance covers, said that discussions with banks have begun. “The renewals happen for most policies on April 1 and this momentum will carry it,” he said.
Currently, the difference between PNB's exposure to the Nirav Modi scam and the bank's insurance cover against such instances is massive. But Datta said that these could be covered in the future.A typical bankers’ indemnity policy, which is taken by institutions across the board, covers money, securities and hypothecated goods against theft, burglary, fire and other natural catastrophe event or employee fraud. However, current policies do not cover risks perpetrated using the computer or online platforms.