She noted that the OCCs decision would affect bank insurance laws in 19 states that have provisions similar to those in West Virginia that the OCC said should be preempted.

David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors in Falls Church, Va., said that NAIFA is considering litigation. He said that NAIFAs executive committee is evaluating all the pros and cons of pursuing litigation and will make a decision after their review is complete.

Bank insurance representatives, meanwhile, praised the OCCs determination.

Beth L. Climo, executive director of the Washington-based American Bankers Insurance Association, called the action “a positive development for banks and consumers of insurance.It ensures that banks can offer insurance products to consumers without improper interference or discrimination by a state. It also provides a useful roadmap for state regulation of bank insurance activities.”

The OCC issued an opinion on Oct. 3 that four provisions of West Virginias Insurance Sales Consumer Protection Act either “prevent or significantly interfere” with bank insurance activities and thus should be preempted under the Gramm-Leach-Bliley Financial Services Modernization Act. These include:

A requirement that financial institutions use separate employees for insurance sales.

A timing restriction that bars banks from soliciting loan customers for insurance until after the loan has been approved.

A restriction that bars bank affiliates from sharing information acquired in the course of a loan transaction or insurance solicitation.

A requirement that insurance activities be physically separate from deposit-taking and loan activities.

However, the OCC also upheld three provisions of the West Virginia law. These include:

A prohibition against requiring or implying that the purchase of an insurance product from the financial institution is a condition of a loan.

A prohibition on a bank offering an insurance product in combination with other products unless all the products are available separately.

A requirement that insurance and loan transactions be completely independent and thoroughly separate documents.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 15, 2001. Copyright 2001 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.

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