When does an insurance pay out for investment losses?

Investors and other creditors seeking help with investment fund recovery because they fear losing their capital may diversify their strategies to ensure maximum recovery. It is important to realize that maximum recovery does not mean guaranteed indemnification. Yet, it reveals that risk mitigation leads to staged repayments and increased overall success. The cross-border nation of most investments enhanced by the complexity of international finance allows for above market returns with corresponding risk. Few investors realize that risk means a writedown of the initial investment and may even require margin calls or force the investor to make other additional payments to cover already established losses.

Regulation of the financial industry is complex and appoints different regulators, authorities and even professional bodies. Most financial institutions, banks and investment firms have a mandatory membership of a trade organization that dictates several risk mitigation requirements. As such, individual traders may need a professional license and have their conduct protected by a liability insurance policy. Other mandatory insurance policies and protection schemes apply to the corporation level. As a conclusion, creditors who feel wronged have three general routes to follow for potential insurance claims. These include the investor, the corporation and indirect via a regulator. Alongside the insurance coverage, both the adviser as well as the firm can be taken to court by victims of their conduct.

Banks and investment firms have a crucial position in society. Their activities allow for a stable and flourishing economy. Therefore, its critical functions must be maintained. Central banks and other regulators have implemented mandatory deposit protection and investor compensation schemes in case the bank or investment firm fails. Detailed information on these bank deposit protection and investor compensation schemes is available on this website.

Traditional insurance policies pay out when the uncertain yet insured event takes place. It crucial for insurance coverage that the insured event is unpredictable and does not follow intentional and forecasted conduct. This is often a discussion for commercial insurers who prefer not to pay damage or compensation to a victim. Therefore, court intervention may be required where the court may bypass the insurance policy and hold the wrongdoer personally responsible for the damage.

In matters of bank failure and the collapse of and an investment firm, the regulator, administrator or central bank acts fast to safeguard public confidence in the financial system. The activation of the deposit guarantee scheme (DGS) or investment compensation scheme (ICS) happens after the resolution decree is announced and the resolution and recovery plan determined. Only qualifying creditors with a valid claim are covered by these government backed and indirect insurance schemes. It is advisable that creditors prepare accordingly to avoid claim rejection and further difficulties.