Is it Risky Business not having Risk-Based Insurance?

WASHINGTON-A U.S. General Accounting Office report released in November highlighted the fact that the National Credit Union Share Insurance Fund is the only federal insurer without risk-based pricing. According to CUNA Chief Economist Bill Hampel, the point is nearly lost on credit unions. “The efficiency of a risk-based premium system is more important when you’re imposing them on an industry that is sort of chomping at the bit to get into more risky activities, like the banks are,” he said. “When credit unions, because of their structure, are less likely to take on risk, the effectiveness of risk-based pricing might not be quite as strong.” The suggestion is partly moot also simply because the fund has been well capitalized, as has the banks’, for several years and will continue to be into the foreseeable future, Hampel added. He also said there are other ways to provide incentives for being less risky, like NCUA’s RegFlex program. “I would imagine that this is an issue that’s really going to be coming to the surface, that there will be more attention given to how does NCUA price its insurance product, because.it’s a flat rate,” CUNA Associate General Counsel Mary Dunn said of the GAO recommendation. “So those credit unions that are more risky are getting a bit of a help in a sense from the way that they price for insurance, whereas those credit unions that are less risky are providing that free ride so to speak.” Hampel also said that CUNA’s Examination and Supervision Subcommittee discussed the issue several years ago and came up with some approaches. The subcommittee’s official position was that they supported exploring the option. [email protected]