Managers of credit union service organizations should understand the risks CUSOs face and never assume a CUSO is covered by a credit union's or third party's insurance policies, a risk management expert told attendees at NACUSO's 21st annual conference.
"As independent legal entities, most CUSOs need their own insurance," said Jim Hunt, manager, Brokerage Solutions and Reinsurance for CUNA Mutual Group.
CUSOs have exposures that potentially touch all lines and types of insurance coverage. Hunt recommends managers conduct a thorough risk assessment of their CUSO. Risk areas include:
* Entity and management liabilities created by the CUSO;
* Physical assets, including buildings, business personal property, data processing equipment and valuable information;
* Business interruption, such as loss of business income and extra expense;
* Human capital, including workers' compensation, employer practices liability and fiduciary liability;
* Bond/crime coverage;
* Business auto.
"In assessing risk, CUSO management should always be asking, 'What could go wrong? Who could be harmed? And what has been done?' These questions should be going through your mind when any new risk is being contemplated by the CUSO, whether it's moving into a new location, adding employees or adding a new service," Hunt said.
Once exposures have been identified, a CUSO has several options in dealing with them. These include avoiding the risk; retaining it and self insuring against it; reducing the chance of loss through education and risk management; shifting the risk by contract to another party; or purchasing insurance.
What To Do To Be Safe
To be safe, CUSOs should review insurance coverage at least annually and whenever they add products or services. Even a CUSO that is wholly owned by one credit union must determine whether the CUSO is named on the credit union's policies or if the CUSO needs its own insurance.
Key is liability insurance, with five basic types that meet most CUSO needs. Not every CUSO needs a policy in every category, but all should be considered, Hunt said.
* Business liability (commercial general liability): covers for bodily injury, property damage, personal and advertising injury
* Excess liability can increase limits for business liability, auto liability and employer's liability coverage. It is often referred to as "sleep" coverage: you won't need to stay awake at night worrying that your limits are too low.
* Professional liability: covers for economic damage to third parties and should be strongly considered by any CUSO offering fee-based services.
* Directors/volunteers/employees: covers for economic damages for individuals, not entities.
* Cyber Liability: insurance for CUSOs that develop software or Internet applications, do data processing, design or host websites, or provide outsourced e-commerce services. These policies protect the CUSO from services that don't perform as intended, advertising injury coverage for infringement of another's copyright or trademark, and/or network security liability for any security breaches of confidential information.
Even after assessing and identifying risks, CUSO management should double check to see if they need to purchase their own insurance or whether they are covered under another entity's policy. "Assuming your CUSO already has coverage is a risk that could become a costly mistake," Hunt said.
