Banking on Insurance

By Newkirk, Kristine M. | Independent Banker, March 2001 | Go to article overview

Banking on Insurance


Newkirk, Kristine M., Independent Banker


Some community banks hop on Gramm-- Leach-Bliley Act as springboard to insurance and other services

Management at Texas First Bank in Texas City, Texas, held off investing in an insurance agency for more than a year because of concerns about existing barriers between banking and insurance. Although the bank could have entered insurance sales by operating from a town with fewer than 5,000 residents, Chairman Charles Doyle says management at the $350 million asset-size bank was uncomfortable with this restrictive approach.

The Gramm-Leach-Bliley Act of 1999 laid to rest those concerns by eliminating the barriers between banking, insurance and securities. It also created new avenues for community banks to pursue insurance sales. Under the law, banks could form financial holding companies or financial subsidiaries to purchase or operate insurance agencies, even underwrite insurance directly through a holding company affiliate.

Ronald Ence, ICBA's director of legislative affairs, admits everything in the Gramm-Leach-Bliley Act does not glitter. "But one of the jewels in this new law is the expanded opportunity for more community banks to get into insurance sales," he says. "As interest margins tighten, fee income opportunities will take on added importance."

Before the law's enactment, national banks and banks in many states could only sell insurance in a limited capacity. They were often restricted in both the scope of insurance service offered and the size of the town from which they sold such products. Now community banks may offer insurance and brokerage services through a financial holding company, a financial subsidiary, or a noncontrolling investment in a company engaged in a permissible financial activity. …

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Banking on Insurance
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