The End of Glass-Steagall Could Hurt Insurance Policyholders

By Napach, Bernice | Medical Economics, December 2, 1999 | Go to article overview

The End of Glass-Steagall Could Hurt Insurance Policyholders


Napach, Bernice, Medical Economics


The new law that abolishes the barriers between banks, securities firms, and insurance companies may make it more convenient to manage your finances. But the same law, the Financial Services Modernization Act, could cost you in other ways.

If you're a policyholder in a mutual insurance company that wants to reorganize into a stock-- based company, for example, you could be out some money. Under the new law, mutual insurers, which are owned by their policyholders, can reorganize without compensating policyholders for the change. They can adopt a hybrid corporate structure known as a mutual holding company. Within this structure, policyholders retain control of just 51 percent of the firm, and the company can issue stock for the remaining 49 percent. That would raise capital for the company, of course, but dilute policyholders' equity.

The new law pre-empts state laws. If a state doesn't allow the, mutual holding company structure, as is the case in New York and New Jersey, the insurer can simply move its charter to a state that does.

Another controversial provision is the sharing of customer information among affiliates of a large financial supermarket. …

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