Senate Panel Modifies COLI Provision And The Industry Applauds

However, in its proposed interpretation, the Fed says that a financial subsidiary of a bank will be treated as an affiliate of the bank, not a subsidiary. Thus, the Fed says, it would not be subject to the anti-tying restrictions of Section 106.

The agent groups say that if the Fed does adopt this interpretation, it should nonetheless make clear that state insurance laws still apply to financial subsidiaries.

GLB, the agent groups say, imposes only one restriction on state authority to regulate insurance sales activities by banks. That restriction, they say, is that a state law may not prevent or significantly interfere with a banks ability to engage in insurance sales.

“State anti-rebating laws unequivocally do not prevent or significantly interfere with insurance sales, solicitations or cross-marketing activities undertaken by depository institutions,” the agent groups say.

“Thus, all state insurance laws, including those prohibiting rebating, remain valid and enforceable and subsidiaries must comply with such laws,” they add.

The agent groups say anti-rebate laws protect insureds and assure the continued financial health of insurance companies.

Without anti-rebating laws, they say, consumers would be encouraged annually to cancel existing policies in favor of new policies offered by the agent presenting the greatest discount.

Moreover, they say, insureds would suffer unjust discrimination.

“Similarly classified policyholders with indistinguishable coverage would be charged different premiums for identical policies,” the agent groups say.

The groups note that in its proposed interpretation, the Fed uses the example of an insurance agency affiliate of a bank offering a discount on premiums to customers that purchase more than one type of insurance as a permissible activity.

However, the groups say, if not structured properly, this exact arrangement may violate state anti-rebating laws.

Indeed, they say, the Fed itself is on record as regarding the subject of state anti-rebating laws.

In 1997, the groups say, the Fed issued a final rule on holding company control of banks that concluded that state anti-rebating laws remain valid and enforceable.

“The Gramm-Leach-Bliley Act only strengthens this proclamation and the Board of Governors must make certain that all entities are aware that state anti-rebating obligations are valid and ongoing,” they add.

Thus, they say, the Fed should state that even though financial subsidiaries of banks are not subject to Section 106 of the Bank Holding Company Act, they remain bound by state insurance laws, including anti-rebating laws.

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 3, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.