Insurance Carriers, NEC

SIC 6399

Industry report:

Establishments providing insurance coverage but not covered by any other insurance category make up the industry classification entitled Insurance Carriers, Not Elsewhere Classified (NEC). Federally supported organizations providing insurance for financial institution deposits make up most of this industry. Other miscellaneous insurers, however, cover everything from pets and trademarks to body parts and automobile warranties.

The Federal Deposit Insurance Corporation (FDIC) is the largest organization in this industry. Created by the Banking Act of 1933 following the failure of more than 8,000 banks during the Depression, the FDIC promotes and preserves public confidence in U.S. financial institutions by insuring bank and thrift deposits up to a legal limit of $250,000. Previously accounts were insured up to $100,000, but the standard maximum deposit insurance amount (SMDIA) was raised with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. In addition, all noninterest-bearing accounts held at FDIC-insured institutions were covered at an unlimited amount for two years beginning December 31, 2010.

In 2009, the FDIC insured more than 500 million U.S. bank and thrift deposits at approximately 8,000 institutions. The FDIC has other responsibilities besides acting as an insurer. It examines state-chartered banks that are not members of the Federal Reserve System for safety, soundness, and compliance with consumer protection laws. The FDIC may liquidate the assets of failed institutions to reimburse the insurance funds for the cost of failures, and it also has the power to set interest rate limits and approve bank mergers.

An independent government agency within the executive branch, the FDIC is run like a private company by a five-member board of directors that includes the Comptroller of Currency, the Director of the Office of Thrift Supervision, and three presidential appointees. The Corporation does not operate on funds appropriated by Congress. Its income is derived from assessments on deposits held by insured banks and from interest on the required investment of its surplus funds in government securities. It also has authority to borrow from the Treasury up to $30 billion for insurance purposes.

Congress passed the FDIC Improvement Act (FDICIA) in 1991. The law instituted a number of agency reforms and gave the FDIC increased power over foreign banks active in the United States. The agency was also affected by a number of federal laws relating to the downsizing of the federal government. The FDIC cut $143 million, or 8 percent, from its budget between 1996 and 1997. Employee compensation was reduced the most during that period, 8.9 percent to $867 million. The agency's payroll shrunk from more than 17,000 workers in 1995 to just 7,241 in 1998. In 1997, the FDIC approved a budget of $1.62 billion, down $221 million or 12 percent from the $1.84 billion authorized in 1996. In each of the next two years the agency operated on a $1.2 billion budget.

Between the late 1990s and mid-2000s the FDIC downsized significantly, falling to just 5,300 in 2004 from a high of 23,000 in 1992, reducing the workforce by another 600 during 2005 primarily through retirement and buyouts. The operating budget in 2004 was $1.0 billion. The transformation of the FDIC was precipitated by an overall change in the banking industry. During the late 1980s and early 1990s the FDIC was heavily involved in working through the demise of hundreds of savings and loans. During the crisis, FDIC employee numbers spiked and then subsequently declined. Industry consolidation also affected the FDIC, which had fewer banks to supervise. Between 1985 and 2003 the number of federally insured banking institutions fell from 18,000 to less than 9,200. In addition, the market share of the 10 largest financial institutions increased from 18 percent to 44 percent.

Following the terrorist attacks of September 11, 2001, the U.S. Congress passed the Patriot Act, under which the FDIC was charged with additional responsibilities to identify, detect, deter, and intercede terrorist financing and money laundering. During 2004 the FDIC conducted over 7,750 safety and soundness and compliance examinations. Another issue for the FDIC in the mid-2000s was the growth of the "payday loan" sector, which charged high interest rates for short-term loans. In March 2005 the FDIC issued new guidelines to reduce the period over which a payday loan could be extended to three months.

The FDIC administers two deposit insurance funds: the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF). BIF and SAIF insure `deposits at the nation's savings and loan institutions up to $100,000 per account. Concerned with sagging fund amounts in the mid-1990s, Congress passed the Deposit Insurance Funds Act of 1996, which directed the FDIC to take immediate steps to recapitalize SAIF and BIF and change the basis on which funds were raised. In response, the FDIC levied a $4.5 billion special assessment that was equal to nearly a year's earnings on SAIF-insured deposits.

As a result of recapitalization, deposit insurance premiums for SAIF-insured thrifts were approximately $800 million lower in 1997 than in 1996. Meanwhile, SAIF's earnings were on the rise, increasing from $550 million in 1997 to $584 million in 1998. Almost all revenue for both years was derived from interest on investments in U.S. Treasury securities and deposit insurance assessments. By 1999, SAIF had an unrestricted fund balance of $9.2 billion and $978 million in the restricted Special Reserve.

The balances of BIF and SAIF continued to grow during the first years of the 2000s. At the end of 2004, BIF held a reserve balance of $34.8 billion and SAIF had a fund balance of $12.7 billion. During 2004 three BIF-insured banking institutions, with assets totaling $150 million, failed, as did one SAIF-insured institution, with assets of $15 million.

The FDIC had its hands full as the first decade of the twenty-first century neared a close. Due to the subprime mortgage crisis and other factors that shook the nation in the late 2000s, including the worst economic recession since the 1930s, 140 banks failed in 2009--the most since 1992. In addition, the number of problem institutions rose to 702, also the highest since 1992. The FDIC also managed the Temporary Liquidity Guarantee Program (TLGP), initiated in October 2008. To deal with the increased workload, the FDIC added to its staff in 2009, which then numbered 6,557 FTE (full-time equivalent) employees, up from 4,988 at year-end 2008.

Many other smaller firms outside the banking sector also participated in this industry. Veterinary Pet Insurance Co., for example, a subsidiary of Nationwide Mutual Insurance, underwrites health insurance for almost half a million pets. Warrantech Consumer Product Services Inc., a Texas-based insurer of warranties, is a leading provider of extended warranties and services contracts for everything from cars to appliances and computer equipment. Travel Guard International, Inc., an underwriter of travel insurance based in Stevens Point, Wisconsin, sold more than 6 million travel insurance policies annually.

According to Dun & Bradstreet, 5,301 insurance carriers that were not elsewhere classified employed 27,435 people in 2010. Together these establishments generated $1.6 billion in revenues.

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