A Comprehensive Guide to Bank Insurance

TABLE OF CONTENTS

DEDICATION

ACKNOWLEDGEMENTS

ABOUT THE AUTHOR

LIST OF ABBREVIATIONS

INTRODUCTION

CHAPTER 1: BANKING REGULATION IN THE UNITED STATES

A BRIEF HISTORY OF THE UNITED STATES BANKING SYSTEM

The First Central Bank

The Second Central Bank

The State Banking System

National Banks and the Office of the Comptroller of the Currency

Survival of the Dual Banking System 

Creation of the Current Central Bank 

Banking Reform in the 1930s 

Banking Reform from the 1930s and through the Mid-1980s 

Banking Reform Since the Mid-1980s 

SYNOPSIS OF FEDERAL AND STATE BANKING REGULATORS

Office of the Comptroller of the Currency (OCC)

Federal Reserve System (FRS) 

Federal Deposit Insurance Corporation (FDIC)

Office of Thrift Supervision (OTS)

State Banking Authorities

National Credit Union Administration (NCUA)

CHAPTER 2: FEDERALLY PERMISSIBLE BANK INSURANCE POWERS

MIXED REGULATION OF BANK INSURANCE ACTIVITIES

STATE INSURANCE REGULATION UNDER THE FEDERAL GOVERNMENT 

Federalism and the United States Constitution

The McCarran-Ferguson Act 

Other Areas of Federal Involvement in Insurance Regulation

Constitutional Federalism and Section 92 of the National Bank Act 

PERMISSIBLE INSURANCE ACTIVITIES FOR BANK HOLDING COMPANIES

BHC Domestic Insurance Powers

Exemption A: Sell and Underwrite Credit Life Insurance, Credit Accident and Health Insurance, and Involuntary Unemployment Insurance

Exemption B: Sale of Single Interest Property Insurance by Finance Company Subsidiaries 

Exemption C: Sell General Insurance in Towns of Fewer than 5,000 Residents 

Exemption D: Grandfathered Insurance Agency Activities Engaged in Prior to May 1, 1982

Exemption E: Supervise Retail Insurance Agents

Exemption F: Small BHCs May Engage in Insurance Agency Activity (Except for Sale of Annuities and Life Insurance)

Exemption G: Grandfathered Insurance Agency Activities Engaged in Prior to January 1, 1971 Pursuant to Board Approval

Judicially Sustained Exemption - Insurance Powers of Subsidiary Banks of BHCs 

Exemption 4(c)(1)(C) - A BHC May Act as Agent, Broker, Insurer or Reinsurer for Itself

Section 20 Company Employees May Sell Annuities and Life Insurance

BHC Selling Insurance with Employee Benefits Consulting Services

BHC Foreign Insurance Powers

BHC Selling Insurance Overseas

BHC Underwriting Insurance Overseas

PERMISSIBLE INSURANCE ACTIVITIES FOR NATIONAL BANKS

National Bank "Incidental" Insurance Powers

Sell and Underwrite Credit-Related Insurance

OCC - Sell Crop Insurance

Issue Debt Cancellation Agreements 

Lease or Rent Office Space

Rent or Sell Lists and Promote

Make Referrals to Insurance Agents 

Act as Agent for the Bank's Own Insurance Coverage 

Purchase Corporate-Owned Life Insurance

Reinsure Mortgage Guaranty Insurance

Purchase An Interest in an Insurance Company Separate Account

Contradictory View of Power to Sell and Underwrite Title Insurance

Issue Title Guaranty, Rather Than Title Insurance

Underwrite or Sell Functionally Equivalent "Insurance-Like" Products

Underwrite Municipal Bond Guarantee Insurance

Sell Fixed and Variable Annuities

National Bank Section 92 Insurance Powers

Sell Insurance Anywhere from Places of 5,000 

PERMISSIBLE INSURANCE ACTIVITIES FOR FEDERALLY CHARTERED/REGULATED THRIFT INSTITUTIONS

Thrift Insurance Agency Powers

Unitary Thrift Holding Company Underwriting Powers

Savings Bank Life Insurance

PERMISSIBLE INSURANCE ACTIVITIES FOR CREDIT UNIONS

CHAPTER 3: PERMISSIBLE STATE BANK INSURANCE POWERS

ROADBLOCKS AND DETOURS

State Roadblocks: Anti-Affiliation Statutes

State Detours: Exemptions and Exceptions to Anti-Affiliation Statutes

THE RIGHTS OF STATES TO GRANT INSURANCE POWERS TO THEIR BANKS

State Banks and the Fed

State Banks and the FDIC

Historic State Bank Insurance Sales Activities 

STATE ANNUITY AND INSURANCE POWERS IN 1994 BEFORE VALIC AND BARNETT

1994 - THE LITTLE BANG

1995 AND 1996 - THE BIG BANG: VALIC AND BARNETT

1995 - The Impact of the VALIC Decision on State Laws

1996 - The Impact of the Barnett Decision on State Laws

1997 and 1998 - Their Continuing Impact on State Laws

CURRENT STATUS OF STATE BANK INSURANCE POWERS

CHAPTER 4: FEDERAL BANK INSURANCE COMPLIANCE GUIDELINES 

EXISTING FEDERAL LAW AND BANK INSURANCE PRACTICES

Illegal Coercive Tying and Permissible Product Packaging

FRB Revisions of Tying Provisions

The OCC and Coercive Tying

Plenty of Protection

Bank Insurance Is Safe and Sound

Banks Do Not Engage in Coercive Tying

Many Consumers Want Alternative Choices When Buying Insurance

THE INTERAGENCY STATEMENT ON RETAIL SALES OF NONDEPOSIT INVESTMENT PRODUCTS – ANNUITY AND MUTUAL FUNDS SALES GUIDELINES 

Background to the Interagency Statement: The Bank Market for Nondeposit Investment Products

Interagency Statement on Retail Sales of Nondeposit Investment Products

Adoption of Policies and Procedures

General Guidelines of Joint Statement

Disclosures and Advertising

Setting and Circumstances

Qualifications and Training

Customer/Product Suitability and Sales Practices

Compensation

Compliance

Regulators' Examination Procedures

Additional Guidance

OCC ADVISORY LETTER 96-8 – INSURANCE SALES GUIDELINES

Federal Prohibitions on Tying

Sales of Insurance in Connection with Extending a Loan

Applicability of State Laws

Management Oversight

Evaluation and Selection of Products

Qualifications and Training

Inappropriate Recommendations or Sales

Employee Compensation

Complaints and Compliance

Advertising

Customer Privacy

Third-party Arrangements

Setting and Circumstances of Insurance Sales Activities and Specific Disclosures

Annuities and Investment Product Sales

OCC Supervision

OCC INTERPRETIVE LETTER 753 – THE FIRST UNION APPROVAL LETTER

The OCC's Analysis – 5 Parts 

The OCC's Conclusions regarding §92 and Its Legislative History

The OCC Asks, and Answers, Two Questions

The OCC's General Principles for Insurance Agency Activities under §92

First Principle: Bona Fide Agency in Place of 5,000

Second Principle: Equal Rights with Nonbank Agency Outside Place of 5,000

MORE FEDERAL BANK INSURANCE REGULATIONS TO COME?

Expanding the Scope of the Interagency Statement?

Increased Focus on Compliance and Audit Controls Relative to the Interagency Statement? 

Treating Cash Value Life Insurance as an Investment under the Interagency Statement? 

E Pluribus Unum – Many Forms of Life Insurance from One Type

CHAPTER 5: THE BANK ANNUITY AND LIFE INSURANCE MARKETS

THE BANK ANNUITY MARKET

Consumer Attitudes and Purchases in the Annuity Marketplace

Brief History of Bank Annuity Sales

One Method of Benchmarking Sales Performance: Deposit-Penetration Ratio

Opportunity Abounds

GROWING BANK INTEREST IN LIFE INSURANCE

Annuities

Mortality Products

Individual Disability and Health Products

Group Health Insurance

Total Premiums – All Products

Most Big Life Insurers Sell through Banks and Other Financial Institutions

Growing Insurance Company Interest in the Bank Market

UNSERVED AND UNDER-SERVED LIFE INSURANCE MARKETS

40 Percent of All Americans Have No Life Insurance Coverage

A Basic, Unprotected Need of $5 Trillion

Traditional Life Insurance Distribution is Inadequate – Except for the Affluent

35 Percent of Amounts Are Purchased by Those Who Earn $75,000+

The Underclass of Life Insurance

THE STRUCTURAL WEAKNESSES IN THE TRADITIONAL LIFE INSURANCE DISTRIBUTION SYSTEM

Declining Sales

Declining Sales Productivity

Traditional Distribution – Insurers’ Greatest Expense

Record Declines in Agent Recruitment and Retention

The Expensive Costs of the High Agent Dropout Rate

Number of NALU Members Declining More Rapidly

An America in Need of Life Insurance

THE CRISIS IN LIFE INSURANCE SUMMARIZED

Bank Insurance Offers Career Agents New Sales Opportunities

CHAPTER 6: SHRINKING BANK MARKETS – WHY BANKS SHOULD SELL BUSINESS INSURANCE

BANKING CORE BUSINESSES IN DECLINE

Deposit Competition

Asset Competition

BANKS NEED TO DIVERSIFY INCOME SOURCES WITH NONINTEREST FEE INCOME

THE POTENTIAL OF THE BUSINESS MARKET

THE POTENTIAL OF BUSINESS-RELATED INSURANCE

The Value Of Key Employees

Protecting Partnerships With Life Insurance

Saving Businesses By Protecting Estates With Instant Liquidity

Strengthening the Bullpen

CHAPTER 7: HOW BANKS SELL INSURANCE

BANK INSURANCE MARKETING PROCESSES

Bank Agency Ownership Structures

Bank Methods of Insurance Distribution

Dedicated Sales Force Versus Part-time Sales Force

Information – The Medium of Exchange

HOW FINANCIAL INSTITUTIONS SELL INSURANCE AND ANNUITIES

Retail Selling, Direct Mail, Telemarketing, and Direct Mail with Telephone Follow-up

Types of Financial Institution Retail Distribution Systems

WHO SELLS WHAT: THE FREQUENCY OF USE OF SALES FORCE TYPES BY PRODUCT LINES

Annuities-Fixed and Variable

Single Premium, Term and Whole Life Products

Universal/Variable Life Products

Disability and Health Insurance

WHICH BANK-OWNED SALES FORCE SELLS THE MOST ANNUITY AND LIFE INSURANCE PREMIUMS? 

Registered Representatives

Life Insurance Specialists

Bank Platform Staff

AFTER-SALES SERVICES TO CUSTOMERS—BANKS OR INSURANCE COMPANIES? 

RECENT DEVELOPMENTS AND TRENDS IN BANK INSURANCE MARKETING

CHAPTER 8: WHAT WILL IT TAKE FOR BANK INSURANCE TO SUCCEED IN THE UNITED STATES? – STRATEGIC EVALUATION AND PLANNING

“INSURANCE.COM” – A CLUE

“SBLI” – “Successful Bank Life Insurance” Program

BANK MARKETING ADVANTAGES/OPPORTUNITIES OVER THE COMPETITION 

THE PRIMARY OBJECTIVE OF STRATEGIC PLANNING

Market Entry Strategies

How Not to Approach Strategic Planning for Bank Insurance Programs

Preparing to Evaluate a Bank’s Insurance Opportunities

THE STEPS TO EVALUATING STRATEGIC INSURANCE DIVERSIFICATION 

Define the Bank’s Objectives and Determine Its Value Proposition(s)

Identify the Bank’s Capabilities, Competencies and Customer Possibilities

Conduct an Economic Assessment of the Opportunities for Selling Insurance

Develop a Strategic Plan

Effectively Implementing a Bank Insurance Strategy

In a Long-Term Business, Patience is a Necessary Virtue

THE ONE-WORD SECRET FOR SUCCESS

CHAPTER 9: CONDUCTING AN ECONOMIC ASSESSMENT OF A BANK’S OPPORTUNITIES FOR SELLING INSURANCE

PROJECT MISSION AND AUTHORITY

BANK PROFILE

ABC Bank Retail Customers

ABC Bank Commercial Customers

PURPOSE OF THE ECONOMIC ASSESSMENT REPORT

NATURE AND CONTENT OF THE ECONOMIC ASSESSMENT REPORT

INSURANCE ASSUMPTIONS

Personal Lines – Automobile and Homeowner Insurance

Ordinary Life Insurance and Cash Accumulation Products

Costs and Profit Margins

Bank's Corporate Insurance

Commercial Client P&C Insurance

Business Life Insurance

THE ECONOMIC ASSESSMENT

Direct-Marketed Insurance Products

Retail Selling of Personal Lines Insurance Products Via P&C Agency

Retail Agency for Ordinary Life Insurance and Cash Accumulation Products

Bank's Corporate Insurance

Commercial Client P&C and Business Life Insurance

SUMMARY OF FINANCIAL FINDINGS OF ECONOMIC ASSESSMENT OF OPPORTUNITIES IN INSURANCE

Financial Summary by Product Line

Aggregate Financial Summary

CHAPTER 10: BANK REQUESTS FOR PROPOSALS (RFPs)

BIRTH OF THE BANK RFP

The Purpose of a Bank RFP

A Bank’s Use of an RFP

What Good RFPs Should Do—Separate Wheat from Chaff

RFP Layout

Distributing RFPs

Finalist Interviews

RFP CONTENT – QUESTIONS ABOUT MARKETERS AND INSURANCE COMPANIES

Questions for Bank Insurance Marketers in General

Questions for Insurance Companies in Particular

Market Conduct Record

RFP CONTENT—QUESTIONS ABOUT PRODUCTS AND SERVICES

Annuity Products

Personal Lines Products – Automobile and Homeowners Insurance

Life Insurance Products

Strategic Plan Development Process for Direct-Marketed Insurance

Financial Projections

Compensation

Marketing and Sales Support

Training Support

New Business – Underwriting and Policy Issue Operation

Customer Service Quality Profile

Business Reports

Technology Support

Beyond the Basic RFP Process – Vendor Business Plans

CHAPTER 11: RESPONDING TO BANK RFPs

THE IMPORTANCE OF RFPs IN SELECTING INSURANCE PROVIDERS

Protecting the Bank-Customer Relationship

Standards Lead to More Standardized Information-Requests

Developments in Bank Compliance Guidelines and Regulations

The Special Influence of the Federal Banking Regulators’ Interagency

Statement and the OCC’s Advisory Letter 96-8

Oversight Responsibility of an Insurance Program

Duties in Evaluating Insurance Companies, Products and Vendors

THE IMPORTANCE OF A VENDOR’S RESPONSE TO BANK RFPs

Competitive Differentiation in a Commodity-like Market

An Increase in Direct Bank-Insurer Relationships

The Relative Importance of Personal Relationships to the RFP-Evaluation Process 

Thoughts on the “Mass-Marketing” of a Bank’s RFP

IMPROVING VENDOR PROPOSALS AND RESPONSES TO BANK RFPs

Declining to Respond to an RFP

Submitting the Proposal or Response to a Bank’s RFP

Formatting the Proposal

Writing the Proposal or Response to a Bank’s RFP

Organizing and Highlighting Important Proposal Content

Responding to Bank RFP Questions

Selling the Bank during the RFP Process

Lessons from the RFP Process

Improving the Management and Monitoring of the RFP-Response Process

Establishing a System for Managing the RFP-Response Process

CHAPTER 12: INTEGRATING INSURANCE IN A BANKING OPERATION

OBSTACLES TO INTEGRATING INSURANCE

Culture Clash

Product- and Distribution-Driven Mentalities

The Question is Less about Culture and More about Customers

Resistance to Sales Culture and Sales Management

IMPORTANT PLANNING ELEMENTS FOR INTEGRATING INSURANCE

An Insurance Sales Force Still Has the Greatest Potential

Hiring Insurance Specialists

Integrated Sales Culture or Integrated Sales Force?

Integrated Reporting Structure for Investments and Insurance

Concrete Sales Goals

Active Management Support

Broad Institutional Support

Active Branch Support

Employee Education and Training

Extensive Channels of Communication

Adequate Investment

Integrating Property and Casualty Insurance Sales Activities

Schedule of Processes, Production Reports and Reporting Procedures

Mutual Respect and Trust

CHAPTER 13: UNBUNDLING AND DESEGREGATION IN FINANCIAL SERVICES

MUTUAL FUNDS – HEIGHTENED FINANCIAL SERVICES COMPETITION

Share of Total United States Financial Assets

Household Ownership of Mutual Funds

The Role of Retirement Savings

The Median Amount of Mutual Funds Held by Families

Growth in Assets and Number of Mutual Funds

Flow of Funds Accounts – Assets of Households

Percent of Total Family Financial Assets

Total Assets of Major Financial Institutions

Bank Sales of Mutual Funds

A Symptom of the Present, A Diagnosis for the Future

UNBUNDLED CUSTOMER BASE: “SHE’S COME UNDONE”

Unbundling in Financial Services

Desegregation in Financial Services

Universal Life – Unbundling Product Features and Pricing

Money Market Funds – Unbundling Depositor, Borrower, and Payments Delivery System 

Technological Unbundling and the “Financial Services Industry”

Securitization – Unbundling Functions

Unbundling the Quality of Life

Life and Health Insurance – The Unbundling Process Continues

Unbundling Markets, Distributors and Customers

PREPARING FOR THE UNBUNDLED AND DESEGREGATED FUTURE IN FINANCIAL SERVICES

Focus on and Serve Clients

Obtain Information to Understand Clients

Differentiate Distribution

Employ Technology Wisely

Value the Value of People

Selling Versus Marketing

Variation of the Individual, Individuation of Variety

APPENDIX A: REGULATORS

FEDERAL BANKING REGULATORS

STATE BANKING REGULATORS

STATE INSURANCE REGULATORS

APPENDIX B: TRADE ASSOCIATIONS

BANK-RELATED TRADE ASSOCIATIONS

AGENT-RELATED TRADE ASSOCIATIONS

INSURANCE COMPANY-RELATED TRADE ASSOCIATIONS

APPENDIX C: EDUCATION AND TRAINING RESOURCES

BANKING EDUCATION/TRAINING RESOURCES

INSURANCE EDUCATION/TRAINING RESOURCES

APPENDIX D: PUBLICATIONS

BANKING PUBLICATIONS

INSURANCE PUBLICATIONS

APPENDIX E: PUBLICATIONS

BANK STATISTICAL DIRECTORIES

INSURANCE STATISTICAL DIRECTORIES

INDEX    

Table of Contents

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