Financial Services Reform Legislation of 1999, the Gramm-Leach-Bliley Act of 1999
Barry A. Abbott, Andre W. Brewster and Charles P. Ortmeyer of Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional Corporation
Title III of the Act deals with
insurance issues and is divided into four subparts:
State Regulation of Insurance, Redomestication of Mutual Insurers,
National Association of Registered Agents and Brokers, and Rental Car
Agency Insurance Activities.
Of these four subtitles, the first (Subtitle A) is probably the most important for our clients. National banks still may not generally provide insurance as an underwriter except with regard to certain "authorized products" (including those which as of January 1, 1999 the Comptroller of the Currency had determined in writing were permissible products for a national bank to underwrite). However, certain traditional bank activities are not to be deemed "insurance," including deposit products, loans, trust services, financial guarantees, and, importantly, annuity contracts (thereby affirming the Valic decision). These products, not being "insurance," would be governed by provisions of federal banking law, not by state insurance law.
Within one year the federal banking agencies must publish specific consumer protection regulations concerning the sale or solicitation of insurance by insured depository institutions. The regulations are to prohibit certain sales practices, including tying and coercion. They also must require institutions to make significant and detailed consumer disclosures, particularly concerning the fact that insurance products are not FDIC-insured. In addition, the bill includes specific requirements for depository institutions to physically segregate the areas in which insurance is sold from that in which retail deposits are offered.
The bill states that, as a general matter, the principal functional regulators of insurance are the state insurance commissioners. However, the bill does preempt large areas of those state laws for specific purposes. For example, and except as expressly provided by state law, no insurance product may discriminate against either a provider of services to victims of domestic violence or a victim of domestic violence in connection with underwriting, pricing, renewal and other matters. The term "domestic violence" is broadly defined and includes various harm suffered at the hands of any family member, household member, intimate partner or caretaker. In addition, while the federal consumer protection provisions included in the bill are to be coordinated with the state insurance commissioners, it is the intent of Congress that federal law will preempt state laws if the federal law provides more protection to consumers than do state laws. Additionally, if there is a regulatory conflict between a state insurance regulator and a federal regulator regarding insurance issues, including whether a state law is preempted by federal law, the bill provides for an expedited hearing before the appropriate United States Court of Appeals and, if necessary, the Supreme Court.
Of the other three subtitles in the insurance title of the bill, probably the most important one is Subtitle B, dealing with the redomestication of mutual insurers. This allows mutual insurers to redomesticate themselves into a state where they can legally become a stock insurer. This provision, which is controversial and may be revisited by the Administration, illustrates, along with Subtitle A, that the Gramm-Leach-Bliley Act is a significant step toward the "nationalization" of insurance regulations in the United States. This regulatory nationalization is also seen in the other two titles of the bill.
Subtitle C provides for a uniform set of laws and regulations concerning the licensure of insurance agents. It also specifically provides for a new "National Association of Registered Agents and Brokers," which will be subject to the supervision of the National Association of Insurance Commissioners. This could eventually provide relief to companies telemarketing insurance products to consumers in multiple jurisdictions.
Subtitle D of Title III makes a legal "presumption" that, for a period of three years, no state law imposing insurance licensing or education requirements will apply to anyone who solicits or sells insurance connected with the leasing or renting of a motor vehicle.
It should be noted that Title I of the Act reaffirms the effectiveness
of the McCarran-Ferguson Act and also contains provisions prohibiting
states from discriminating against insurance policies and practices
offered or used by depository institutions.