Rogue traders such as Nick Leeson pose a major threat to financial institutions but insurers struggle to offer adequate cover for such cases, according to Zurich Head of Financial Institutions Asia-Pacific Damian Lynch.

“If [Leeson’s bank] Barings had bought a policy – if it had been available – it still would have gone under because we would not have been able to provide enough capacity to mitigate the bank’s exposure,” he told a Zurich financial institutions forum in Sydney last week.

It is a hard risk to underwrite because the exposure is so large and the sums involved become “very high, very fast”.

Leeson cost Barings more than $1.3 billion in losses during the 1990s, while former Societe Generale trader Jerome Kerviel has been ordered to repay $7.2 billion after one of the world’s biggest trading frauds in 2008.

Institutions often do not have the right type or degree of cover, Mr Lynch says.

“There was a lot of talk about cover for unauthorised trading when it first came out… and we thought it might be something that was really of value to the customers. I am not convinced about it yet.”

Clients might buy $100 million or $150 million of cover but this will not match losses from a serious fraud.

“It’s extremely complex cover,” Mr Lynch told the forum. “It’s very technical and I think we could do a better job as an industry of perhaps trying to simplify it a little bit.”

After a large number of losses from trading scandals, the global financial crisis has affected the market, underwriters have backed away and premiums have risen.

“At Zurich, the products we have offered for unauthorised trading have not been the runaway success for us or our customers that we hoped,” Mr Lynch said.