New York Regulators Says Cost, Scarcity of Insurance May Open Door for Banks; State Legislative Panel Hears Other Industry Arguments for Expanded Powers

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ALBANY, N.Y.--New York Superintendent of Banks Jill Considine suggested Monday that the scarcity and high cost of commercial coverages like medical malpractice, blanket bond, and municipal liablity insurance may have increased banks' chance of winning expanded insurance powers next year.

Testifying at a public hearing before a joint legislative committee, MS. Considine said, "I think that it's not so easy for the insurance agents to say that there is widespread availability of the product at a good price."

The superintendent also said that widespread joint ventures between banks and insurance companies or agents to sell policies in branch lobbies show bank-provided insurance to be" a product whose time has come."

Ms. Considine didn't say whether as a bank regulator she would favor bank entry into the commercial insurance underwriting business.

Most banks are interested in selling insurance as agents, and some would like to underwrite predictable coverages like life insurance. But no bank has publicly expressed interest in underwriting medical malpractice or municipal liability insurance.

Insurers, who consider these lines their industry's equivalent of Third World loan exposure, said privately that "it would be diastrous" to allow banks into the commercial liability market.

"If banks had been able to insure these risks three years ago, they'd be in the soup now -- especially if they did it cheaper, as they say they would," said one insurance executive who asked not to be identified.

Assemblyman Herman D. Farrell, D-Manhattan, chairman of the Assembly's banking committee, who also spoke at the hearing here, took a less optimistic view than Ms. Considine about the passage of a bill expanding bank insurance powers.

"In an election year, far-reaching legislation like this tends not to pass," he said. "But that doesn't mean it won't."

The joint hearing was held by the Senate and Assembly banking committees to hear views on two bills introduced in the Legislature this year. One would allow state-chartered banks to act as insurance agents and brokers. The other would permit banks to own and invest in life and property/casualty insurance companies, and vice versa.

According to a member of his staff, Sen. Ralph Marino, R-Nassau, Senate banking commitee chairman, had asked hearing witnesses to consider whether, if permitted to engage in the insurance business, banks would be willing to underwrite high-risk commercial liability coverages "in addition to profitable lines like homeowners' insurance."

Like most banking industry representatives testifying, Superintendent Considine argued that expanded bank powers would benefit consumers by "increasing competitionj and making available to the marketplace additional financial products with an enhanced and more convenient delivery system and significant benefits in terms of lower costs.

"It's a little ironic to me that you have the banks and insurance agents going head-to-head on this and in the meantime you have Sears owning a bank, an insurance company, a brokerage, and real estate, and it's growing," she added. …