Insurance Limits Hurt Consumers

By Smith, Daniel R. | ABA Banking Journal, December 1993 | Go to article overview

Insurance Limits Hurt Consumers


Smith, Daniel R., ABA Banking Journal


If your bank's like mine, you need and desperately want more opportunities to sell insurance. It's that simple. But, of course, gaining new insurance products and services for our industry is far from simple.

At First of America, our insurance subsidiary offers credit-life, our retail area offers fixed annuities, and we've just recently begun to offer a variable annuity product. We're "trying on" every possible insurance product, in other words, to find the right mix. Our goal is to be a player in a market that is a natural for banks of all sizes. We'd like to be able to offer products like long-term care contracts, variable life, homeowners, auto, and other insurance products. These products make sense and are a perfect fit for where we see ourselves in five or ten years.

But like most other banks, our hands are tied. As usual for the banking industry, the marketplace is light years ahead of the legal and regulatory structure. Insurance restrictions on banks make absolutely no sense in this marketplace, and they make even less sense when you consider that our competitors are already heavily diversified. Primerica and Travelers Insurance are growing even more diversified through their proposed merger. Savings and loans, credit unions, mortgage companies, and finance companies can associate with insurance agencies and offer combinations of banking and insurance products we can't touch.

Commercial banks are the only providers of credit that are limited in their ability to sell insurance. So we work around the margins as best we can, creating a subsidiary here, filling a niche there. It's not enough.

The real loser here, of course, is the consumer. There's no market in which more competition has ever hurt the consumer, and maybe that's why some consumer groups have generally supported the sale of insurance by banks, as have the more progressive insurance companies.

For its part, ABA is helping us fight the insurance battle through the courts and, to the extent we can, on Capitol Hill. Progress in the courts has been remarkable at times, particularly in regard to confirming the "towns of 5,000" rule. The overall insurance issue is still not fully resolved by the courts, however. Recent appeals court decisions, for example, have questioned national banks' right to sell annuities. ABA will continue to be involved in all relevant insurance cases. We're in them to win.

Of course, banking's progress in the courts has also mobilized the insurance agents, who have been looking for support in Congress to pass new protections for their industry. …

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