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Insurance Ruling Unlikely to Lead to Immediate, Sweeping Change

June 8, 1993

NEW YORK (AP) _ The banking industry cheered a Supreme Court decision allowing some national banks to continue selling insurance, but analysts said they doubted the ruling would make much immediate difference to banks’ bottom lines.

Banks have been pushing for expanded powers to get into the insurance and securities brokerage businesses as revenues decline from traditional bread- and-butter operations such as commercial lending.

Bankers were trying to create a financial services supermarket in their branches where all consumer financial needs could be handled under one roof. The massive life insurance market - with $9.98 trillion insurance in force by 1991 - seemed to be a natural extension for the banking industry’s vast branching network.

Only 300 banks nationwide are selling insurance, according to the American Bankers Association. Despite the potential, the business hasn’t been a huge moneymaker for banks.

″I can’t see any financial impact, even if they do it well,″ said Linda L. Stromberg, director of bank equity research at Howe Barnes Investments Inc. in Chicago.

The insurance industry is competitive and consumers have tended to shop around for better deals at large insurance companies specializing in personal lines insurance rather than opting for the convenience of a bank branch, said Ira L. Zuckerman, insurance industry analyst for SBS Financial Group Inc.

The court’s unanimous decision Monday, written by Justice David H. Souter, said a lower court mistakenly ruled Congress had repealed the rights of nationally chartered banks to sell insurance.

Congress in 1916 allowed national banks in small towns with 5,000 or fewer residents to sell insurance, although banks in larger towns generally weren’t given such powers.

Banks won a significant victory in 1986 when the Comptroller of the Currency, a key federal bank regulator, said the banks in the small towns could ″export″ their insurance and sell it nationwide. The Independent Insurance Agents of America, a trade group, sued to prevent the National Bank of Oregon of Portland from selling insurance nationwide.

″This is a very narrow decision,″ said Robert Rusbuldt, vice president of federal affairs at the Independent Insurance Agents of America in Washington.

Rusbuldt said the Supreme Court didn’t decide on the merits of banks selling insurance and the court essentially returned the case to the Court of Appeals in Washington, D.C.

″The decision that was rendered today maintains the status quo,″ Rusbuldt said. ″Clearly the banks believe this is a major victory for them because they don’t have to divest their holdings.″

Stromberg and other analysts said the ruling carries more of a psychological lift for banks.

″All banks want to diversify their income stream and I think they will be absolutely ecstatic that (the Supreme Court has) allowed them to get their foot in the insurance industry’s door,″ she said.

Michael F. Crotty, deputy general counsel at the American Bankers Association, agreed. Several cases are pending in lower courts concerning banks’ ability to sell title insurance and annuities, he said.

″That decision will open a lot of doors for us,″ he said.

Other large banks have pursued the insurance option through other avenues. Citicorp of New York sold insurance through its state-chartered bank in Delaware. It is now slowly testing the insurance market to its customers through the mail, spokeswoman Susan Weeks said.

″We’re not racing into this,″ she said.

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