Massachusetts Ruling Eases Insurance Sales By Banks

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Massachusetts bankers are still awaiting word from state insurance regulators on whether they will appeal a recent federal district court ruling, which, if left unchallenged, could bring an end to state regulatory efforts to impose limits on bank sales of insurance.

The Boston-based federal district court issued a declaratory judgment Jan. 12 in favor of banks wanting to engage in insurance sales.

The ruling caps a long battle pitting state insurance regulators against the federal regulatory authorities and banks who have been seeking to end some restrictions on banks selling insurance.

A spokesperson for Massachusetts insurance regulators said they were reviewing their options.

“Todays decision brings Massachusetts in line with most of the states throughout the nation,” said Daniel J. Forte, president and CEO of the Massachusetts Bankers Association.

The plaintiffs in the casethe MBA and several of its member bankshad argued that the federal Gramm-Leach-Bliley Act, which was enacted in 1999, as well as a more recent interpretation of the National Bank Act by the chief regulator of nationally chartered banks, preempted certain provisions of the Massachusetts insurance law.

The court agreed that the challenged statutes significantly interfered with a banks ability to sell, solicit and cross-market insurance.

U.S. District Judge Ryan Zobel wrote in his decision that federal law preempts state law by allowing banks to refer customers to the banks insurance division, which state law says they cannot do unless specifically asked by a customer. In addition, federal law allows banks to pay their employees for referring customers to the banks insurance agency.

GLB contains 13 so-called “safe harbor” restrictions state regulators are allowed to use to curb bank insurance sales. But the banking interests argued that the restrictions in Massachusetts went beyond these allowable curbs.

While the ruling only affects federally chartered banks, Forte said once the legality has been settled there will be efforts to apply it across the board to state and federally chartered institutions.

He noted that savings bank life insurance has been sold primarily in state chartered banks throughout the country and that the new ruling, if applied to them, could help boost sales through more referrals.


Reproduced from National Underwriter Edition, January 20, 2005. Copyright 2005 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.