Private Insurance Makes Comeback In Lone Star State

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Some 14 years after private share insurance disappeared from the Lone Star State, Texas CUs now have another option when it comes to insuring member deposits.

The Texas CU Commission approved a motion to allow American Share Insurance (ASI) to provide private share insurance to credit unions in the Lone Star State. ASI President Dennis R. Adams said several Texas CUs had contacted the company about information and a meeting was arranged and also attended by Texas CU Commisioner Harold Feeney.

"We were asked to make a presentation to some Texas credit unions. It was by invitation," Adams said. "Texas at one time had a private insurance fund. Private insurance is an option they want to explore."

The expansion by American Share Insurance into Texas marks a significant milestone for private deposit insurance, which has been under scrutiny since the failure of deposit insurance schemes in several states, most notably the Rhode Island Share Deposit Insurance Corp (RISDIC) in the mid-1980s. Ohio, home to ASI, also saw a run on deposits at institutions insured by the former Ohio Deposit Insurance Corp. (ODIC) during the same period.

Indeed, Texas had its own private insurance provider, Texas Share Guaranty, until the state folded it up in 1992, following the RISDIC failure.

Not wanting to deal with any insurance crises in their states, regardless of the health of the insurer, a number of states passed laws requiring federal deposit insurance for all institutions.

Texas had been one of those states, but the Texas Commission reopened the door in 1999 when it adopted rules to provide an option to federal insurance.

And in the meantime, ASI has weathered the storm, with its primary growth area being Excess Deposit Insurance for accounts above $100,000.

Adams said for 32 years, ASI has insured member share deposits for state-chartered CUs, and in 1983 it included excess deposits for federal charters. Adams said the average size of a Texas credit union is around $74 million, near the same average ASI client nationwide. Adams said he doesn't know how many Texas credit unions are ready to join ASI in the near future or for the rest of the year, for that matter.

"It could be one or 100, I don't know that. I never do," Adams said.

Of the 625 credit unions in Texas, Adams said roughly 225 have state charters representing $17.5 billion in member assets, which he called a "significant number." Adams said fully two-thirds of ASI representatives travel to client credit unions, so establishing an ASI office in Texas isn't being planned for the near future.

Adams said the increased coverage amount of $250,000 per account and the flexibility of having more than one account per member are two aspects of private share insurance that appeal to CUs. Members with substantial deposit amounts can hold multiple accounts that exceed well over the $100,000 account limit per member (not per account) insured by the NCUSIF.

"We're not forced by policy or statute to aggregate those amounts," Adams said.

Adams said credit unions also report that private share insurance can be a market advantage for them as they compete for market share. Adams also said many CUs enjoy the "business partner" approach that ASI takes asserting that the company is an insurer first and decidedly not a state or federal regulator.

Texas Credit Union Commissioner Harold Feeney said ASI met all the requirements of the Texas Finance Code in order to offer private share insurance in the state. Feeney said he expects most Texas CUs to stay with their existing federal insurance but at least now they will have another option.

ASI presently insures more than 180 state-chartered credit unions and $13.4 billion in member shares throughout eight states.

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