Insurers protecting cash from theft, fire — and fees

It's logical that a bank would be a place where cash is stashed, but Europe's economics may have lead to too much of a good thing.

The glut of euros in some German banks has grown so fat that some are paying insurers to help protect it.

European insurance executives told Reuters the banks are hoarding billions of euros of cash in vaults to avoid paying a penalty by parking it at the European Central Bank.

Allianz S.E., the region's largest insurer, and Ergo insurance Group, Germany's second biggest player, told Reuters they are seeing an upsurge in inquiries for cash insurance by German banks. Germany's Talanx A.G. and France's Axa S.A. said they offer similar policies.

On large amounts, these can cost less than half the price of keeping the money at the ECB, and executives said banks and insurers are striking deals to underwrite holdings of €2 billion ($2.25 billion) to €4 billion ($4.5 billion). Partially driving the move is the central bank's negative deposit rate of 0.4 percent, which translates into a charge of €4 ($4.50) a year on each €1,000 ($1,125) deposit at the central bank, Reuters reported.

Storing and moving billions of euros of banknotes also presents a logistical challenge because banknotes are heavy to move in large quantities. Two billion euros in 200 euro notes, for example, weighs roughly 11 tons.

The cash may also be stolen or even catch fire, two of the chief risks that insurers protect banks against.