Insight

Insurance cover for trade and fx errors

Published

15 June 2023

Read time

2 minutes

It doesn’t take much explaining that market volatility caused by the current economic and geopolitical climate, comes with an increase in risk. This can directly translate through to severity and frequency of losses resulting from trade or fx errors, and we are seeing evidence of this in claims activity, with 2023 set to be the highest on record in our Asset Management (AM) portfolio.

For the most part the AM portfolio is seen as a low frequency, high severity class. As a result, many insureds have not been through a claim scenario and are unfamiliar with the process and often the extent of coverage available. This is especially true in relation to cover afforded for errors (such as trade and fx) as it operates on a mitigation basis, allowing payment prior to a claim being brought, as opposed to defence or settlement of a legal claim actually brought against an insured.

Markets, not to mention investor’s patience, are unlikely to stand still for anyone, time is therefore of the essence when it comes to an error, so it is important to familiarise yourself with the extent of the coverage available and your obligations under the policy, as well as the process you will need to go through.

The key elements of this article explore:

  • How managers deal with errors
  • The background to mitigating a claim
  • Concept of the mitigation clause
  • The impact of exoneration or indemnity clauses in an IMA
  • The need for speed
  • In conclusion, our advice

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