In 1993, Joseph Carlson, president of Memphis-based Centrex Underwriters Inc., expected "a blizzard of applications" for private deposit insurance.

Just the year before, 13,000 accounts with $375 million had gone unprotected in bank failures. Although depositors ended up losing only a fraction of that amount - $56 million - the stage seemed set for insurance salesmen like Mr. Carlson.

Banks were foundering, thrifts had been dropping like flies, and depositors were nervous. The Federal Deposit Insurance Corporation Improvement Act of 1991 required the FDIC to resolve bank failures as cheaply as possible - putting depositors on notice that the government would not bail out accounts beyond the $100,000 insurance limit.

The FDIC itself was studying the feasibility of using private reinsurers to cover a portion of the deposits it was required to protect.

What a difference a few years make. Banks are flush with profits, thrifts are healthy, and Mr. Carlson is a bit rueful.

"The market hasn't set the world on fire," he said. "There's not as much demand. The banking industry has really come back."

"Our timing was a bit off," agreed Gary Dubois, first vice president of Reliance National, a subsidiary of Reliance Group Holdings in New York. In the late 1980s, he recalled, the company was flooded with inquiries about a deposit insurance product. But by the time the company developed one, the industry had recovered.

Like the proverbial Maytag repairman, the purveyors of private deposit insurance are a little lonely these days. Nevertheless, the market seems large enough for three carriers. And these companies believe in the market's potential.

Small banks are the customer base for Topeka-based Kansas Bankers Surety. The banks buy coverage - at a current maximum of $10 million per institution - as an enhancement for their large depositors, said Don Towle, Kansas Bankers' president.

"The premium depends on the quality of the bank," Mr. Towle said, adding that banks are rated on their management track records, capital, and customer bases. Typically, premiums range from 15 cents to 22 cents per $100 of deposits, he said.

Why would banks want to offer the excess insurance? It's a way to hang on to large deposits, Mr. Towle said.

He offered the example of a small bank that has a corporate depositor with more than $800,000 in its account. Each year, the company is audited, and the auditor notes that only $100,000 of that amount is insured by the FDIC. "The bank got a certain amount of comfort by buying them a bond" insuring the excess deposits, said Mr. Towle.

Reliance's customers tend to be businesses that have ties to several financial institutions. Instead of spending time and resources checking out each bank, Reliance's customers buy excess deposit coverage to protect them in case any bank they patronize goes under, Mr. DuBois said. Premiums run from 10 cents to 15 cents per $100 of deposits.

Mr. Carlson's agency offers coverage through General Star Indemnity, a subsidiary of General Reinsurance Corp., Stamford, Conn., and mostly sells to individual depositors. "Some are savvy enough to know it's out there," he said, "and they want it." Coverage of $200,000 costs about $500 a year, he said.

Insurance company officials declined to disclose their policyholder totals, but they agreed that the market is small.

One problem, they said, is that most banks can't buy excess deposit insurance for all their large depositors because each carrier limits coverage to $5 million to $10 million per institution.

Unless the market gets stronger, more carriers won't be willing to offer the product. But the market can't grow - and accommodate the needs of banks - until greater coverage is available.

"If you had 10 carriers each with $10 million of exposure," a bank could find coverage for all its large customers, said Mr. Dubois of Reliance National.

The FDIC ran into a similar problem when it considered using reinsurers to cover a portion of bank deposits. Only one carrier was interested, said Roger Watson, FDIC director of research and statistics. And that carrier only wanted to insure deposits at the strongest banks.

"Theoretically, the concept has a lot of merit," Mr. Watson said. "But you need to get a lot of reinsurers in the market."

While business is slow now, insurers remain optimistic; they say that the industry runs in cycles and that the inevitable bad times for banks and thrifts will again create good times for deposit insurance.

"I'm sure it will become a very big thing," predicted Mr. Carlson of Centrex Underwriters.

"When the world turns again, and banks are not making obscenely high profits, the panic will set in again," added Mr. Towle of Kansas Bankers Surety.

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