Insurance and bank industry officials and lawyers estimate premiums for small banks have risen at least 15 percent since the financial crisis spanning the late 2000s. Some insurers boost deductibles and write policies that leave insureds uncovered if regulators take future action.

The Federal Deposit Insurance Corp. (FDIC) has been increasing legal efforts to punish corrupt executives and directors of banks that collapsed during the financial crisis. The FDIC has been able to bring in hundreds of millions of dollars in legal settlements so far to offset the $86.8 billion in losses the deposit insurance fund has incurred since 2008.

As a result of increased government pressure and a history of bank failures, insurance premiums including D&O coverage for members of the banking industry are rising dramatically. The problem is compounded for smaller banks; many are still dealing with financial troubles related to the crisis, lower interest rates, new regulations and a lack of demand for loans.

FDIC statistics include:

• The agency typically tries to settle claims before filing a suit and collected $337 million in settlements in 2012

• FDIC has 3 years from the time of a bank's failure to file a lawsuit

• 19 suits have been filed against former executives and directors since October 2012 (including 8 so far in 2013)

• 94 lawsuits have been authorized this year, up from 54 last year.

AH&T Insurance in Newark, N.J., estimates that insurance rates for community banks rose 5 percent last year on a $10 million policy. The rise came in the wake of the 10 to 15 percent increase immediately following the crisis. Not all lawsuits are a direct result of fraud; some concern directors who should have acted with greater caution.

Special Reports /

IQ: Small Banks Feel D&O Burn

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