As more credit unions convert to federal insurance, a Dublin, Ohio-based private insurer is trying to drum up new business by pushing supplemental deposit insurance.
Faced with a shrunken market for primary private insurance, Dublin-based American Share Insurance sees an opportunity to tap into a multibillion dollar market with a program that extends coverage $250,000 beyond the $100,000 federal limit.
"It's a great opportunity to segue from one business limited by statute" to one with more growth potential, said Dennis Adams, president of the company, which insures $4.1 billion of deposits at 290 credit unions. "I anticipate it will become a good part of our business."
$6 Billion Uninsured
Mr. Adams estimates that the credit union industry has $6 billion in uninsured deposits. Currently the insurer is licensed to offer supplemental insurance in 20 states, but within three years it hopes to be licensed in 32 states, Mr. Adams said.
The company has had the product in its arsenal for a decade, but now only in the past year has it actively marketed such coverage.
"People called to say they didn't know we had the program," Mr. Adams said. "We just decided to put more emphasis on it."
The insurance covers deposits up to a set aggregate coverage limit, Mr. Adams said. Insured credit unions place a 1% deposit based on the coverage provided with the insurer, and then pays a monthly premium based on the amount of insurance actually used. The premiums are determined in part by the credit union's most recent safety and soundness rating.
Lure for Big Depositors
The insurer is billing the program as a marketing tool for credit unions that want to hold on to their larger depositors, Mr. Adams said.
Patelco Credit Union, San Francisco, has been in the program for five years. Edgar Callahan, president of the credit union, said it has helped them attract and hold onto large depositors.
"By offering the insurance I think we increased our deposits and helped keep them [borrowers]," Mr. Callahan said.
Currently 70 credit unions have about $500 million in deposits insured by American under the program, Mr. Adams said. About a third of those credit unions have signed on in the past year.
Mr. Adams said the program should attract more credit unions as loan demand picks up and institutions start aggressively seeking deposits.
Handful of Survivors
American is one of a handful of private insurers to survive since a Rhode Island private insurer went bust in 1991. After the debacle some states required federal coverage, causing several insurers to liquidate.
Some of the states that required federal insurance, such as Missouri, still permit supplemental insurance, Mr. Adams said.