NFA Studies Insuring Customer Segregated Accounts

In the wake of several high profile failures of futures market participants, the NFA and others recently completed a study of how customer asset protection insurance ("CAPI") would work in the futures industry.  The CAPI program would provide additional customer asset protection and limit the risk of loss to customers.  The study found that insurers were not in favor of individual futures customers or FCMs on behalf of their customers purchasing CAPI directly from primary insurance carriers because neither the individual customers nor the FCMs would retain any "first-loss retention".  Insurers require their beneficiaries to have some “first-loss retention” so they retain some material exposure to first losses to mitigate "moral hazard" – the risk that insurance coverage reduces the incentives of the insured party to manage risk.