N.Y. Banks Seeking Latitude Under Insurance-Sale Proposal

Gov. George E. Pataki's proposal to allow New York's state-chartered banks to sell insurance may not be comprehensive enough, some bankers say.

Although the proposal would allow New York's banks to sell life insurance, some say it is unclear whether it would grant them permission to sell property and casualty insurance. Many banks want to offer property and casualty policies in conjunction with mortgage, automobile, and other loans.

"Selling only life insurance has minimal value to this bank," said Charles Wait, president of Adirondack Trust Co., a $326 million asset-bank in Saratoga Springs.

Governor Pataki on Sunday announced plans to establish procedures for state-chartered banks to sell insurance. Under his proposal, banks would have to set up corporate subsidiaries to sell insurance and seek approval for their plans from the superintendents of banking and insurance.

Although the Governor's proposal does not need to be approved by the state Legislature, it is subject to approval from the State Banking Board, which oversees banking regulatory proposals.

The New York State Banking Department says it expects insurance agents to contest Mr. Pataki's proposal in court. Laws in New York do not specify what role banks can play in selling insurance, bankers said.

Mr. Wait said one section of the state's insurance statute, for instance, forbids banks from selling property and casualty insurance, but that the law does not address the sale of such policies through a bank's corporate subsidiary.

He is hopeful that his bank will be allowed to sell property and casualty under the governor's proposal.

In general, the proposal is "a great step forward," Mr. Wait said. "We were in trouble, because we couldn't compete with the federally chartered banks."

The Governor's proposal came on the heels of the U.S. Supreme Court's ruling in March that national banks can operate insurance agencies in small towns. It is designed to give New York-chartered banks parity with their federally chartered counterparts.

"We're commending the Governor for this decisive step," said Michael Smith, New York Bankers Association president.

Mr. Wait said he would most like to sell property and casualty policies to capitalize on Adirondack's relationships with mortgage customers. He said there is less competition in the property and casualty field than in life insurance, so margins are higher.

He also believes property and casualty is an easier sale for a bank to make, because a licensed loan officer can tout the policies along with mortgages. Life insurance policies often get short shrift from brokers, who are more willing to sell less-complicated mutual fund and annuity products.

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