Recent Developments Permitting Banks to Engage in the Insurance Business
| Publication year | 1991 |
| Pages | 35 |
| Citation | Vol. 20 No. 1 Pg. 35 |
1991, January, Pg. 35. Recent Developments Permitting Banks To Engage in the Insurance Business
The artificial barriers between the banking and insurance industries are crumbling. The integration of the two industries is proceeding at a pace that is, perhaps, even more rapid than the integration of the banking and securities industries.(fn1) This article discusses the restrictions on state banks engaging in the insurance business and compares the insurance powers of state banks located in Colorado with those of national banks, bank holding companies and state banks located elsewhere. Finally, it examines several recent regulatory and court rulings that highlight the trend toward integration of banking and insurance.
The insurance powers of banks and bank holding companies recently have been increased by several favorable rulings by the Office of the Comptroller of the Currency ("OCC"), the Board of Governors of the Federal Reserve System ("Fed"), the courts and state regulators, as well as changes in the statutory laws of several states. Even though no similar changes have been made to the Colorado Banking Code, the Colorado Insurance Code or the regulations thereunder, the developments elsewhere threaten to overwhelm Colorado's restrictions against banks engaging in the insurance business and may result in Colorado banks being placed at a competitive disadvantage.
The recent developments in this area are the natural result of the competitive pressures faced by banks and other financial institutions. Shrinking profit margins, together with competition from non-banking firms, have forced banks to explore nontraditional avenues to grow. Insurance is a natural area of expansion for banks. The financial products offered and the risk analyses performed by banks and insurance firms have much in common. In addition, the empirical studies that have been performed indicate that the resulting increased competition benefits consumers by reducing prices and increasing convenience.(fn2)
Both the Colorado Banking Code and the Colorado Insurance Code prohibit banks from engaging in the insurance business, subject to certain limited exceptions.(fn3) Colorado law does not permit state-chartered banks to underwrite insurance.(fn4) Notwithstanding this general prohibition, however, both the Banking Code and the Insurance Code contain express exceptions permitting banks to engage in the insurance business under certain circumstances. For example, a bank located in a community of less than 5,000 inhabitants
. . . may, pursuant to federal law, under rules and regulations as may be prescribed by the banking board and subject to regulations of the commissioner of insurance concerning the sale of insurance by banks as provided in section 10-2-221, C.R.S., act as agent for any fire, life, or other insurance company authorized to do business in this state by soliciting and selling insurance and collecting premiums on policies issued by such company.(fn5)
The Insurance Code contains a parallel exception permitting any bank holding company, subsidiary, affiliate or employee thereof to be licensed to sell insurance, as long as the licensee is located in a town that does not exceed 5,000 inhabitants.(fn6) Neither exception has been interpreted by the courts.(fn7)
The Colorado Insurance Code also permits state banks and bank holding companies located in Colorado to sell credit life and credit accident and health insurance,(fn8) as well as municipal bond insurance,(fn9) and to continue to operate
an agency which sold insurance in this state on July 1, 1977, ... so long as such agency continues to function as it was constituted on said date.(fn10)
This last exception, grandfathering an existing insurance agency subsidiary, applies only to United Banks of Colorado,
Pursuant to the McCarran-Ferguson Act, the regulation of the insurance industry is largely...
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