Of Gramm-Leach-Bliley
Overview of GLB Act/Privacy provisions
On November 12, 1999 President Clinton signed into law the Gramm-Leach-Bliley Act (GLB). Passage of this legislation swept away Depression-era banking laws that have long prohibited banking and insurance entities from entering each other’s business. One section of the act receiving increasing levels of attention is Title V, which includes guidelines on how companies can handle personal information of consumers.
Title V prohibits an institution that provides financial products or services from sharing a customer’s nonpublic personal information with nonaffiliated third parties unless the institution first discloses its privacy policy to consumers and allows them to “opt out” of that disclosure. Title V also requires a financial institution to provide each of its customers with a notice explaining the institution’s privacy policies and practices.
Various federal and state agencies have responsibility for enforcing Title V, and the corresponding authority to issue implementing rules. In the context of insurance activities, state insurance regulators are responsible for enforcing the privacy provisions with respect to insurance companies and agencies, and insurance subsidiaries of banks.
Implementation of key GLB provisions
Federal regulators have extended the deadline for implementation of GLB privacy provision law from November 13, 2000 to July 1, 2001 to give companies in the affected industries more time to comply. Since the insurance industry is regulated at the state level rather than at the federal level, two-thirds of the states must change the date to July 2001 for the deadline to be extended for insurers. By late October, less than two-thirds of the states had extended or indicated plans to extend the effective date.
GLB also has a provision requiring at least 29 states to pass uniform agent licensing laws by November 2002, and calls for the creation of the National Association of Registered Agents and Brokers (NARAB), a federal licensing board if that deadline isn’t met. The National Association of Insurance Commissioners (NAIC), according to a January 4, 2001 BestWire story, sees NARAB as a threat to state regulation of insurance.
Not all state legislatures meet yearly, making this year’s sessions key to this GLB provision.
Status of Ohio activity
Ohio was the first state to enact reciprocal licensing for nonresident agents and the first state to comply with GLB’s agent licensing provisions. The NAIC and Ohio also launched the pilot of the National Insurance Producer Registry (NIPR), creating a one-stop agent licensing system in September, 2000.
Currently in Ohio there are statutory privacy provisions in the form of Ohio Revised Code 3904. Chapter 3904 is based on a 1982 model privacy law put forth by the NAIC.
While some 16 states have enacted this model in some form, Ohio’s law only applies to life/health (L/H) insurers. At close of publishing, there were no Ohio statutes or regulations relating to privacy in Ohio for property/casualty (P/C) insurers.
Title V of GLB took effect on November 13, 2000. On September 27, 2000 the Ohio Department of Insurance (ODI) issued Bulletin 2000-1 announcing that compliance with the privacy requirements in GLB and any additional regulations enacted by the ODI will be required by July 1, 2001. So even though Ohio statute is silent on P/C companies and the handling of customer information, there are federal laws that speak to the issue for all financial institutions.
On the national front debate continues as to how privacy regulations can most effectively be enforced for the insurance industry. There will undoubtedly be much more activity on this issue in the coming months on both the state and national levels.
Banks with insurance activity
A survey sponsored by the Association of Banks-in-Insurance (ABI) has found that 26% of banks in the US are selling small-business P/C lines of insurance, and 23% plan to do so within the next two years.
The survey results, released in January, 2001, also found that 22% of banks are selling group L/H lines of insurance, and 23% are planning to do so within the next two years. The survey was mailed to 2,300 financial institutions nationwide, with over 300 responding.
When GLB became law, many observers prognosticated that it would be the end of community banks, and that mega financial services conglomerates would drain the customer base from smaller banking institutions.
At close of publishing the only active venture taking advantage of the new law (besides Citibank/TravelersGroup merger to form Citicorp), is one involving a coalition of Midwest community banks. Eaton National Bank and Trust, a $139 million-asset institution in Eaton, OH brought together three other Ohio institutions and an Indiana bank to buy 50% of Century Surety Group, a Columbus P/C insurer.
For most smaller banks, insurance underwriting, up to this point, has been too drastic a step. In fact, the ABI survey found that banks have little interest in actually assuming underwriting risk. Only 7% of the ABI survey respondents said it was “likely” or “very likely” that they would assume underwriting risk within the next three years for either L/H or P/C insurance.
However, the ABI survey did find that there seems to be more interest from banks in the distribution of insurance, in some form of insurance agency acquisition or partnership. 43% of the respondents indicated they had already acquired or partnered with an agency, or would be likely to pursue an acquisition or a partnership with an agency.
Thrift charter activity
Some insurance companies and related groups are forging paths into the financial services sector by applying for thrift charters. Before the passage of GLB, some insurers had been applying for thrift charters through the US Office of Thrift Supervision. Through year-end 2000, 45 insurance companies and related groups have applied for thrift charters. A list of selected insurance companies and trade associations with charters is provided below. A full list of thrift charters and related information can be downloaded from the US Office of Thrift Supervision website at www.ots.treas.gov (type in key words: thrift charter summary).
Excerpts from “Insurance Issues Update,” Insurance Information Institute, Ruth Gastel, editor
• Too complicated or time consuming
• Unhappy with customer service
• No need, not interested
(USA Today, 2/21/00)
