Insurance Products for Pension Funds: Protecting Participants, Staff, and Trustees

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• On: 10/03/2023 13:43:16
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By: Andy Muthoni, NCPERS
 
In a September 26 webinar hosted by NCPERS in collaboration with Gallagher, we continued our tradition of providing valuable insights to public pension trustees, staff, and fiduciaries. 
 
With a history spanning more than 50 years, our partnership with Gallagher has allowed us to offer essential insurance products that not only safeguard pension funds but also contribute to our overarching mission of enhancing financial security for participants and their families, said NCPERS Executive Director and Counsel, Hank Kim. During the webinar, moderated by Kim, panelists provided a detailed overview of the NCPERS insurance product portfolio, shed light on the ever-evolving cybersecurity landscape, and underscored the benefits that hold significant relevance for employees and stakeholders alike. 
 
NCPERS Public Employee Financial Protection Plan: Group Voluntary Term Life Insurance This product is structured as a decreasing term benefit, complementing pension benefits. It provides a substantial upfront benefit early in an individual's career, gradually decreasing over time as their pension grows. Importantly, this insurance covers not only the employee but also their spouse and child automatically for only $17 per month.
 
“Some unique features include additional benefits for severe injuries or accidents, making it a valuable complement to pension benefits,” said Shawn Adkins, who specializes in Employee Benefit consulting, hospital administration, and financial management at Gallagher, adding that “Premiums remain constant, regardless of age, with no medical exams required.” 
 
Identity Theft Insurance: This type of insurance focuses on safeguarding personal information, finances, and devices. It is individual-oriented and offers coverage to protect against various online threats and scams. It includes features like credit monitoring, dark web monitoring, and tax fraud prevention. The family benefit allows coverage for up to 10 adults and unlimited minor children.? 
 
“Each adult member can receive up to $5 million in coverage,” said Adkins, adding that the product is highly effective at combating the rising threat of identity theft and digital crime. 
 
Both life insurance and identity theft insurance plans are straightforward to administer. They can be offered either as employer-paid or on a voluntary basis. Premium rates vary based on group size. Adkins noted that payroll deduction is recommended during active employment, with an easy transition to pension deduction upon retirement. 
Continuous enrollment is available, allowing members to sign up at any time, with pre-existing events considered for reimbursement. With simplified administration processes and constant premium rates, they present appealing options for both employers and employees. 
 
Fiduciary Liability Insurance: This insurance serves to protect plan trustees and government officials from personal liability resulting from breaches or misuses of plans. Zack Kramer, who specializes in cybersecurity and management liability at Gallagher, provided valuable insights into the importance of fiduciary insurance for pension plans, emphasizing the high standard of care government entities are held to and the need for additional coverage beyond indemnification and statutory obligations. Kramer highlighted that even when employees don't have direct fiduciary responsibilities, the standard of care remains high, leading to potential litigation.? 
 
Cyber Liability Insurance: Kramer discussed what cyber insurance covers, including damages, defense costs, judgments, and settlements related to wrongful acts or breaches of fiduciary duties. He emphasized the significance of defense costs, which can accumulate quickly during a cyber incident response. Kramer also outlined typical exclusions, such as failure to collect owed contributions, investment losses, fraud, criminal acts, and workers' comp violations. 
 
On cyber insurance, Kramer explained that policies differ among companies but generally include first-party and third-party coverage agreements. The first-party coverage addresses incident response expenses, cyber extortion, business interruption, digital asset restoration, and additional coverage like contingent bodily injury and reputational harm. “Third-party coverage includes liability aspects such as privacy and network security liability, regulatory fines, Payment Card Industry fines, media liability, and more,” he said. 
 
Kramer also highlighted the importance of a breach coach in the event of a cyber incident, describing the life cycle of how insurance vendors are selected when a breach occurs. This involves bringing in various specialized vendors to address different aspects of the breach, from forensics to notification and crisis management. Additionally, he discussed current trends in the cyber insurance market, noting that small and medium-sized entities are increasingly targeted by cyber attacks. Kramer emphasized the importance of implementing critical controls such as multi-factor authentication, patching, and employee training to mitigate cyber risks. 
 
Finally, Kramer mentioned the shift in underwriting standards, which have become more rigorous post-2018 due to the increase in cyber claims. Insurance companies now focus on vulnerability scans, ransomware mitigation controls, and robust controls to assess cyber risks. 
 
The webinar offered invaluable insights into protecting pension funds, enhancing cybersecurity, and fulfilling fiduciary duties. By understanding the benefits and services provided by these insurance products, organizations and individuals can bolster their financial security, safeguard sensitive information, and navigate the complex world of fiduciary responsibilities and cyber threats with confidence.