Losses Lead CUNA Mutual To Plan Rate Hike

Register now

CUNA Mutual Group, which has been warning for months that escalating credit card fraud will cause it to raise insurance premiums, said last week it has filed with regulators to hike rates across the board.

The credit union insurer, which provides plastic cards coverage as an endorsement to its mandatory fidelity bond for 5,600 credit unions-roughly 95% of credit unions with a cards program-said credit unions continue to report soaring costs due to credit and debit card fraud.

Industry costs due to cards fraud surged by 56% last year to about $89 million, and are on pace to reach $120 million this year. About half of those costs are paid by CUNA Mutual-the other half by credit unions themselves. Approximately half of CUNA Mutual's losses are covered by premiums, meaning the company lost almost $25 million on the program last year.

"There has to be a significant increase (in premiums) because we're paying out $2 for every $1 we're bringing in," said Marc Krasnick, senior vice president for Credit Union Protection at CUNA Mutual.

The company has applied to regulators in all 50 states and the District of Columbia for approval to raise rates. Krasnick said he couldn't quantify how much premiums would go up, as the rates vary for every credit union, but he conceded it will be a "significant" increase.

Plans call for CUNA Mutual to obtain approval from regulators by Oct. 1 and to start implementing the new rates on a rolling basis as credit union policies become due.

The rate increases are part of a comprehensive plan by the credit union insurer to rein in the soaring costs of cards fraud, caused mainly by the massive data breaches that seem to be breaking out every six weeks, or so.

Those incidents have prompted dozens of credit unions across the country to recall, then reissue, hundreds of thousands of cards-as many as one million over the past year-because of the threat they may be misused, even though incidents of fraud on those cards may be few.

In those cases, CUNA Mutual policies only reimburse the credit unions for the costs of those cards reissued where fraud has occurred and the credit unions bear the costs of notifying members, then recalling and reissuing the cards where there is no fraud.

Credit unions bear the costs for other reasons. For some, rising deductibles mean they must accrue large costs before they are reimbursed. In some cases, credit unions choose not to make insurance claims because of fear that too many claims will push up premiums.

Beside reimbursing CUNA Mutual for its losses, the rate increases will serve two main functions, according to Krasnick. The first is the ability of the insurer to reimburse credit unions for large losses.

"It's (the program) always been designed and intended to cover catastrophic losses, not routine, expected losses," he said. "And two, it will provide greater incentive for credit unions to make significant investments in loss prevention."

"We're encouraging credit unions to look holistically at their cards program," said Krasnick. One option, used by almost all banks, is to self-insure against losses, he said. Because they bear all losses in cases of cards fraud, banks have been much more diligent in loss prevention than credit unions, he added. "Credit unions are playing catch-up with the banks," said Krasnick.

In the meantime, CUNA Mutual will continue its multi-pronged approach to holding down losses. That includes risk-management education, risk assessment, merchant litigation to recoup losses, lobbying for better laws, and partnering with cards processors, he said.

For reprint and licensing requests for this article, click here.