The need is greater, but the market is has tightened
Posted on September 3, 2010
By Michael Mazur, senior manager in ABA’s Benchmarking and Survey Research Group.
A survey of the types of insurance carried by banks finds that the largest reported premium increases in 2008 were for Building and Contents, Financial Institution Bond, and Directors’ and Officers’ Liability.
The 2009 ABA Bank Insurance Survey Report provides a detailed examination of the types of insurance coverage carried by 115 banking institutions nationwide. Compiled by the ABA’s Benchmarking & Surveys team, the information in the survey covers policy limits, deductible amounts as well as annual premiums for a various policies from automobile to D&O, to workers compensation. The data in the survey mainly covers 2008.
During the economic downturn, banks have depended more on insurance to give themselves the coverage they need to weather the storm. At the same time, because of the downturn, the resulting drop in the stock market, as well as the increase in the number of bank failures, many banks are finding that insurance that was once affordable is becoming more expensive. This is particularly true for banks seeking D&O coverage, which has become an increasingly popular coverage. (Last year’s ABA Compensation & Benefits Survey noted that out of 330 survey respondents, 140 banks said they offered D&O insurance for outside directors.)
Reasons cited for the premium increases included “bank growth,” but large banks frequently attributed these increases to “higher prices.”
In 2008 large institutions (with assets between $20 billion to $50 billion) spent on average $7.1 million per bank on premiums, while very large banks (assets of over $50 billion) spent $21.6 million per bank. Respondents projected that premiums for these two size categories would be up 20% and 16% respectively over 2008.
The Financial Institution Bond (previously called a "bankers blanket bond") is used to insure banks against employee dishonesty, burglary, robbery, forgery, and similar crime exposures. The survey found that in general for FIB the risk coverage rate decreases as bank asset size increases, reflecting economies of scale. At surveyed banks, FIB coverage per $1 million in assets ranged from $32,000 at banks under $100 million to $600 at banks over $50 billion.
In terms of automobile insurance, most survey participants had coverage for liability if they owned or leased vehicles. The typical coverage ranged from $1 million to $3 million per institution, even though the number of owned or leased vehicles increased significantly with bank size. Not surprisingly, the price for $1 million coverage was much higher for the large banks than for smaller institutions.
Eight out ten banks surveyed said they offered some type of workers’ compensation coverage. The most common workers compensation is through an insurance/guaranteed-cost policy. The typical policy limit tended to vary from $500,000 to $1 million.
The 2009 ABA Bank Insurance Survey Report contains over 90 tables with data summarized by different asset size groups ranging from banks with less than $100 million to those with more than $50 billion in assets.
For further information on the survey please visit the ABA’s Benchmarking & Survey’s Web site at http://www.aba.com/Surveys+and+Statistics/default.htm
2008 INSURANCE PREMIUMS RELATED TO BANK’S NONINTEREST EXPENSE
• Group 1: Less than $100 million in assets
• Group 2: $100 million to $249 million
• Group 3: $250 million to $499 million
• Group 4: $500 million to $999 million
• Group 5: $1 billion to $4.9 billion
• Group 6: $5 billion to $19.9 billion
• Group 7: $20 billion to $49.9 billion
• Group 8: $50 billion or more
[This article was posted on September 3, 2010, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2010 by the American Bankers Association.]