Independent bankers, like other professionals, have found it tough in recent years to obtain liability insurance for their directors and officers. And if they do stumble across an underwriter, they're finding that they often must pay drastically higher premiums for much less coverage, says banking consultant Gerry Findley.
Now Findley, an independent bank specialist in Brea and one of the first to sound the insurance alarm four years ago, is awaiting federal approval for his unique insurance-like company that would provide broader coverage than carriers now offer and provide it at a cheaper premium.
"About 30% of the independent banks in California are going bare--without insurance--because they can't get it or they can't afford it," Findley said. "We're losing good outside directors because they don't want to open themselves up to personal liability."
A bank in Reno, for instance, recently was offered a new policy calling for a $100,000 deductible and an annual $87,000 premium for $1 million worth of coverage for its directors and officers, he said. And the policy excluded the big-buck claims arising from regulatory actions, securities matters and mergers and acquisitions.
Findley's Interbank Trust Co., which would be owned by 25 banks that would provide $40,000 each in start-up capital, would provide key insurance coverage for member banks in California and six other Western states. It would cover directors and officers for everything except violations of the law and insider suits--those brought by shareholders or other directors.
Interbank is one of a number of ideas proposed recently to help banks get insurance, but Findley's plan is unique primarily because it is self-funded and does not look to outside reinsurers. In fact, it's not technically insurance because, while it provides each member up to $1 million in coverage, any payments would be taken out of a so-called shared-risk pool that would be funded equally by each member-bank.
"There's no other charter with this kind of operating plan," said Tim Sullivan of the U.S. Office of the Comptroller of the Currency.
The review by the comptroller's office began in January. "Because of its unique nature, it presents legal and policy issues the comptroller has to deal with. The whole question of commercial banks associating with the insurance business, for example, is an area of concern," Sullivan said in explaining why the review has taken more than seven months
If the plan is approved by the comptroller, Interbank would set up three self-insurance trusts, would provide other trust services for member banks and would act as a clearinghouse for independent banks for such common needs as supplies or temporary help.
"It's a good idea, a good concept," J.B. Crowell, president and chief executive of Eldorado Bank in Tustin, said about the plan. "Right now, deductibles are unreal, premiums are high and by the time you read all the exclusions, you wonder what kind of insurance you've got."
Findley and his son, banking lawyer Gary Findley, have been working on the plan for 18 months. The elder Findley said he expects an answer from the comptroller in the next few months.
Banks Would Get Profits
Any profits from the company would go to the 25 banks that put up the initial capital, totaling $1 million.
The Findleys said they won't profit directly from Interbank. Gary Findley said he has his own practice and won't join Interbank's legal staff, and Gerry Findley said he will turn over the chief executive position to a banker as soon as the company is operational.
The elder Findley said he will remain on the company's board for about a year and then return to his consulting work full time. The Findleys said they expect, at most, $30,000 to cover part of their fees and expenses in setting up Interbank.
"We'd gain through our own investments because we own stock in 231 independent banks," Gerry Findley said. "So we've got a helluva lot at stake."
A potential Interbank competitor is the American Bankers Assn., which plans to offer directors and officers insurance and blanket bond insurance, covering all employees, from a yet-to-be-formed Bermuda subsidiary. Setting up the subsidiary in Bermuda enables the association to put together its insurance plan with more speed and less regulation than would be possible in the United States.
The trade group now has one carrier ready to provide primary insurance but still is negotiating with other carriers for tough-to-get reinsurance, which effectively insures the original underwriter against some of its claims losses.
"Our idea is to provide long-term stability . . . a market for our members," said John Wolfe, an ABA staff member. "We are not saying we'll provide the lowest price or the broadest coverage.
B of A Self-Insured