Prop. 103 Clears Banks to Sell Insurance, Official Says

State Insurance Commissioner Roxani Gillespie and state Bank Supt. Howard Gould have removed a hurdle for banks seeking to sell insurance under provisions of Proposition 103 by ruling that the initiative, at least by implication, repeals all state laws keeping them out of the business.

Gillespie, in a letter to an official of the state’s largest association of insurance agents, said she and Gould reject the agents’ argument that the banks are still barred from selling insurance because Proposition 103 did not explicitly repeal two provisions in the financial code regulating banks, along with repealed provisions in the insurance code forbidding such sales.

The insurance commissioner also denied the request of the group, the Independent Insurance Agents and Brokers of California, for a public hearing on the matter, and indicated that the state Insurance Department will now process applications by banks for insurance sales licenses.

Meanwhile, Gould released a bulletin saying, “The Banking Department considers that the Financial Code restrictions . . . are repealed by implication with the passage of Proposition 103, and has prepared a legal opinion to that effect.”

Officials of the agents’ association, who had met with Gillespie on the issue last week, said Tuesday that they are considering going to court in an attempt to keep the banks from competing with them in insurance sales.

“We are disappointed with Mrs. Gillespie’s refusal to hold a hearing and (her decision) to defer to the Banking Department’s opinion,” said the agents’ legal counsel, Stephen Young. “We do not agree with their reasoning.”

Only state-chartered banks, a little more than half of the total in the state, are affected by the Proposition 103 provisions. Allowing these banks to sell insurance has long been a goal of reformers seeking to increase competition and lower prices in the insurance business.

The state Banking Department’s bulletin did caution the banks that they should “carefully conduct the new lines of business” and that they will be “prudently monitored.” It said the banks would be required to submit reports to the Banking Department, but that “application processing, licensing and ongoing supervision of licensees’ insurance activities will be conducted by the Department of Insurance.”

A newsletter released Monday by the agents’ association, meanwhile, took Gillespie to task for refusing for the time being to promulgate regulations on how to apply several key parts of Proposition 103, particularly the clauses allowing insurance agent rebates to customers, and those restricting cancellations and non-renewals of insurance policies.

The newsletter said Gillespie had informed association officials that the Deukmejian Administration plans to respond only to complaints on a case-by-case basis and set no general regulations until the state Supreme Court rules on the overall constitutionality of Proposition 103.

Confusion Claimed

But the high court has allowed most of the measure to go into effect pending its review, and association president Bob Sanford said in the newsletter that the department’s refusal to promulgate regulations has left agents and brokers “in an extremely treacherous position,” uncertain what to do. Consumers also are confused, he said.

A spokeswoman for Gillespie said, however, that the insurance commissioner believes she needs Supreme Court guidance before she can establish any systematic regulation.

Harvey Rosenfield, chairman of the Proposition 103 campaign, charged, meanwhile, that “the agents are trying to get the commissioner to establish regulations that will essentially resurrect the same barriers to competition that Proposition 103 repealed.”

Meanwhile, the proposed new state budget released by the Deukmejian Administration in Sacramento on Tuesday contained money to hire only eight new workers in the Insurance Department for the next fiscal year, despite Gillespie’s pledge to eventually add 300 members to her 515-member staff to implement Proposition 103.

Officials in the state Finance Department said that if the Supreme Court upholds Proposition 103, they will ask the Legislature to supplement the staff immediately and that the budget is only provisional in this respect.