Two Banks Get Licenses for Insurance Policy Sales

Taking a major step toward implementation of Proposition 103, State Insurance Commissioner Roxani Gillespie announced Friday that she has issued licenses to sell insurance to two major banks--First Interstate and Security Pacific.

While Gillespie said the banks are permitted to immediately begin acting as sales agents for insurance companies, representatives of both said their start-up date will be at least several weeks away. Both banks indicated that the first sales will be rather limited.

Meanwhile, the state’s largest organization of insurance agents, the Independent Insurance Agents and Brokers Assn., announced that it will file suit Monday in a Superior Court somewhere in California to block sales of insurance by banks. A spokesman for the group said a temporary injunction will be sought while the case is adjudicated.

Increase Competition

The licenses issued by Gillespie allow Security Pacific to market fire, casualty (which includes auto insurance), life and disability policies. By contrast, First Interstate is permitted for the time being to market only life and disability policies--until its personnel take exams to qualify for selling auto insurance.

During the insurance initiative campaign that led to the passage of Proposition 103, supporters of the provision allowing banks into the insurance business contended that the step will increase competition and lower insurance prices.

But neither bank Friday committed itself to selling at lower prices, and neither announced the names of the insurance companies whose policies they will sell.

Rex Morlan, chief of Security Pacific’s insurance group, said: “We do not have contracts with any companies. . . . We’re confident we will have several companies, but we haven’t nailed it down to the final ones yet.

“I think we can be ready for sales in two or three weeks, but not on a broad basis,” Morlan said. “We’re planning to do some test marketing, and our plans for the future are to market only through the mail.”

So, Security Pacific customers will not be able to walk into a bank branch and buy insurance policies, but some will be solicited through promotional material sent out with their checks or in other bank mailings.

John Popovich, a spokesman for First Interstate, said that bank is hesitant to say when it will start sales, in part because of uncertainties about how the courts may react to the agents’ lawsuit.

“We have people in a constant state of analysis in terms of products we will sell, and the delivery system we will use, and while we’re not moving slowly, we’re not moving precipitously either,” Popovich said.

Blair Reynolds, senior vice president and general counsel of the California Bankers Assn., said that many other banking firms will soon apply for licenses to sell insurance and that he is sure eventually bank sales will bring down insurance prices.

“Where this has occurred in other states, prices have come down to the public because of the increased competition, but you can’t make a specific commitment until you find out what the market is,” Reynolds said.

He noted that about half the states have permitted banks to sell at least some insurance beyond credit insurance (to protect mortgages or credit cards) and that from 1919 to 1976, state chartered banks in California were authorized to sell insurance in towns of 5,000 population or less, although to his knowledge none did.

Gillespie cautioned Friday that the way Proposition 103 was written left ambiguities about bank sales that she said would have to be cleared up by the Legislature. For instance, the statute repealed by Proposition 103 banned auto insurance sales by the banks but also contained a provision that specifically authorized them to sell credit insurance.

In repealing the statute, the matter of credit insurance “is left blank,” Gillespie said, and she suggested that the Legislature pass a bill reauthorizing it.