Flat-rate premium systems have also been viewed as being unfair as “low-risk” banks are required to pay the same premium as “higher-risk” banks. With no inbuilt incentive for “higher risk” banks to improve their risk profile, a flat rate system would accentuate the moral hazard problem.
Therefore the primary objective of most differential premium systems has been to provide incentives for banks to avoid excessive risk taking, minimise moral hazard and introduce more fairness into the premium assessment process. Introducing fairness into the system bolsters industry support for deposit insurance.