GLBA Spurs Insurance Activities at Banking Organizations
For many years, banking organizations have engaged in certain types of insurance sales and underwriting although with many restrictions and in a much more limited fashion as compared to today. However, when Congress passed the Gramm-Leach-Bliley Act (GLBA) in 1999, banking organizations’ powers to sell and underwrite insurance expanded greatly.
GLBA allows a bank holding company (BHC) that meets certain requirements to become a financial holding company (FHC) for the purpose of selling and underwriting insurance products directly or indirectly through a nonbank subsidiary without geographic limit. GLBA also broadened banks’ authority to sell a full line of insurance products through a financial subsidiary although banks and bank subsidiaries may not underwrite insurance.
Insurance sales are popular
Though insurance is not new to banking organizations, the rate at which banks are engaging in insurance sales activities and affiliating with insurance agencies has picked up noticeably since GLBA’s passage in 1999.
Of the 323 BHCs in the Southeast with more than $150 million in assets, approximately 58 percent are involved in insurance sales. About one-third of the 83 state member banks are involved in sales activity. Nationally, around 70 percent of BHCs and 48 percent of all banks reported insurance revenues. These levels of activity all represent increases over pre-GLBA levels.
Twenty-four Southeastern FHCs engage in expanded full-service insurance agency sales activities, making these activities the most common of the four new or expanded activities permissible under GLBA, particularly among banking organizations with assets of less than $1 billion. Full-service insurance agency sales are the most popular GLBA-permitted activity on a national basis, involving about 30 percent of FHCs.
Insurance underwriting see less activity
In the Southeast and the rest of the United States, FHCs have engaged only nominally in purchasing insurance companies for underwriting noncredit-related insurance, such as property and casualty insurance. This low level of activity can be attributed to the much larger commitment of resources and expertise that noncredit-related underwriting requires. This form of underwriting also has less synergy with banking and, in general, has higher risks and lower rates of return than banking.
Banking organizations still pursue pre-GLBA insurance underwriting
Some BHCs continue to purchase or form companies that are engaged solely in underwriting or reinsuring life, accident and health, or unemployment insurance directly related to an extension of credit by the BHC or its subsidiaries. Those activities were already permissible prior to GLBA.
By Chan White in the Atlanta Fed’s Supervision and Regulation Department