Tips Offered on Heading Off Insurance Regulation Woes

attitude are keys to avoiding problems with insurance regulators paying added attention to bank programs. That's the advice given to bank insurance executives by John F. Hartigan, general counsel for the Financial Institutions Insurance Association, at a conference here. "Marketing materials are undergoing intense scrutiny at this time," said Mr. Hartigan, a partner at Morgan, Lewis & Bockius, a Los Angeles-based law firm. Bankers need to recognize "that the platitudes are more and more an issue." Any adjective or adverb implying safety and soundness are under scrutiny, Mr. Hartigan said. The $6.8 million fine levied in May against NationsBank for deceptive securities sales practices in 1993 and 1994 is an example of the mood of regulators, he added. The attorney offered bankers at the Financial Institutions Insurance Association fall conference some general advice on dealing with insurance regulators. He cautioned against hiring brokers with blemished histories. "You have to do background checks," Mr. Hartigan said. If you do not, questions like "How could you hire someone you knew had three customer complaints?" will be raised later. Banks must also watch new, young brokers taking over a book of business. In some cases, those brokers might tell a customer that he does not know why the previous broker chose a specific product. Their goal could be to generate fees from switching, he said. "It's astonishing what happens out there," Mr. Hartigan said. Customer contact should also be handled correctly. If a customer calls to ask about how a market or life event relates to owned products, it's important to update the customer file. Too often, answers are given without consulting the file. Suggesting that a recently unemployed customer sit tight in a volatile market can lead to problems with regulators. If a complaint or problem does develop, Mr. Hartigan said, it is important to proceed diligently. Any regulatory inquiry should be taken seriously, Mr. Hartigan said. Never give an answer without first looking for relevant information. It's unfortunate if the regulator has documents from a customer that the bank had not pulled, he said. "There is nothing wrong with telling an examiner, 'I don't know; let me find out and get back to you.'" Mr. Hartigan recommends the bank have one person who handles such inquiries. And he cautioned against following any hastily given advice to fight an allegation instead of working it out. Better to be cooperative, he said, because after a lawyer recommending a fight has left, the bank still has to deal with the regulator.u