Libor scandal could have long-standing consequences

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Insurers face heavily financial losses as the result of the Libor scandal

Many of the world’s largest insurance and financial institutions may be liable for hundreds of millions of dollars over the next several years due to the ongoing Libor scandal. Libor refers to the London Interbank Offered Rate, which is an average interest rate estimated by the leading banks of the United Kingdom. Libor has been a somewhat controversial issue for several years, but has become even more so in light of the current scandal. The scandal was ignited when Barclays admitted that its traders had actively attempted to manipulate Libor.

D&O sector expected to bear a powerful blow

The scandal could have serious consequences for both the insurance and banking industries. The directors and officers (D&O) insurance sector is expected to pay a wide range of legal costs for executives of companies that have been involved in the Libor scandal. Towers Watson, a leading professional services firm, expects that the sums involves in the legal defense of company executives will be massive. According to a 2011 report, the firm noted that companies with more than $10 billion in assets required approximately $187 million in insurance coverage.

Scandal may make it difficult for banks to obtain comprehensive insurance coverage

Regulators from Japan, Europe, and the U.S. are currently investigating a large number of banks that have been suspected in manipulating Libor. As the drama unfolds, it is expected that the bank industry will have a problematic time finding comprehensive insurance coverage in the future. Because of the large scale of the Libor scandal, even those that did not participate in the scandal are likely to be affected by the consequences imposed by the insurance industry.

Insurers likely to feel the effects of Libor scandal for many years

The global insurance industry is well acclimated to the risks associated with the banking industry. Though insurers are prepared to handle incidents involving fraud, few are poised to mitigate the financial losses that are associated with a scandal of this magnitude. Though international authorities are working to put an end to the Libor scandal as soon as possible, the global insurance industry is expected to feel the effects of the scandal for years to come.

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