The Gramm-Leach-Bliley Act of 1999 (GLB)1 is landmark financial services legislation. GLB is the culmination of over thirty years of effort to reform the regulation of financial services.2 During this period, Congress considered numerous bills without reaching consensus.3 GLB was enacted on November 12, 1999, and many of its most significant provisions became effective on March 1, 2000.4 For many observers, GLB is notable for its repeal of the Glass-Steagall Acts restrictions on commercial bank affiliates' investment banking activities. Of equal interest, however, are provisions that widen the entrance for banks into the insurance industry. Both sets of changes are expected to encourage further the consolidation of financial services and provide additional competition in the offer, sale, and underwriting of insurance products and securities.
At the same time, GLB subjects insurance affiliates of banks to "functional" regulation by state insurance and securities regulators. Largely for historical reasons that have little relevance in today's economy, regulation of traditional insurance products has been relegated to the states.6 Nontraditional insurance products, such as so-called variable insurance products that have a market return feature, are also subject to regulation by securities regulators. Predictably, this welter of regulations and regulators will continue to impede bank insurance activities even as GLB opens the door for their expansion.
This Article traces the growth of insurance in America and describes how its regulatory structure developed separately from the regulatory structure of other financial services. The authors show how banks became involved in insurance activities as a way to expand their traditional banking services. Regulatory restrictions at first impeded that effort, but GLB has now opened the door to allow greater expansion. Nevertheless, as the Article describes, banks continue to face regulatory hurdles and restrictions under GLB that will impair their ability to compete in the insurance business. Finally, the authors question whether the "functional" regulation on which GLB is premised is an efficient and effective method to regulate financial products.
II. INSURANCE HisToRy AND BACKGROUND
Insurance is an important part of our modern financial structure, and banks play an increasingly important role in that industry. To understand the regulatory tension created when banks provide and market insurance products, it is important to appreciate the background and historical antecedents of the insurance industry. For reasons that will be explained in this part, insurance is regulated at the state level. Banking regulation is a curious mix of state and federal regulation.7 The regulatory complications created when banking and insurance are offered by the same entity or in affiliated entities are selfevident and are discussed further later in this Article.8
A. Early History
Like other aspects of our financial system, insurance had its beginnings in ancient societies. The annuity concept dates back to ancient Egyptian, Hindu, and Chinese societies.9 Life insurance appeared in Europe between the twelfth and sixteenth centuries.lI One such policy was issued in March of 1411, insuring the life of a pregnant slave belonging to Barnaba Boneto in Genoa.II Fire insurance appeared in Flanders in the early thirteenth century.12 A legal action on a contract of marine insurance was filed in the City of Bruges in 1377.13
The concept of insurance was introduced in England by the Lombards in the thirteenth century.14 Queen Elizabeth granted rights to register assurances at the Royal Exchange in 1574.15 Lloyd's of London began at Edward Lloyd's Coffee House in 1688, where merchants gathered to discuss shipping and its attending risks.16 Life insurance policies were offered in England as early as 1583.17 Life insurance was initially viewed as gambling and was prohibited in several European countries during the sixteenth and seventeenth centuries. …