Banking and insurance are certain to make an interesting mixture. Yet to characterize it as an oil-water blend is to think in haste. And to see it as some sort of latent symbiosis is to oversimplify a multitude of issues.

Somewhere - probably in the middle - there is understanding to be had and common ground to be shared. And both camps need to seek and find it soon, because this possibility-this inevitability, rather-raises a host of questions, challenges, and opportunities.

What we know as an impenetrable wall between banking and insurance is coming down. Banks are buying insurance agencies, and insurance companies like State Farm are going into the banking business.

Hopefully this major change will translate to a movement pattern of both lender and indemnifier getting in sync with the marketplace of tomorrow. Unfortunately the business community, bank customers, and policyholders know very little about the implications of this fusion.

Answers - and usually more questions-can be found in the differences and similarities of the two businesses.

Banks make loans up front and then collect interest. Insurance companies collect premiums up front and pay claims later.

Banks underwrite loans much as insurance companies or agents underwrite commercial and larger personal lines.

Banks renew loans, just as insurance companies have renewal cycles.

Both are impacted by advanced accounting and prediction methodologies, as well as changing and enhanced technology.

But once matters of industrial comparison and contrast are settled, the financial services professional has to wrestle with the necessary evil of regulation.

In most states, such as my own, insurance and banking are regulated by separate agencies. Sometimes these are headed by elected officials, but more often than not they are appointed.

On the federal level, financial institutions are subject to oversight from the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Federal Reserve, and the Securities and Exchange Commission.

Insurance companies are subject only to peripheral government oversight at best, and typically depend on trade groups for internal policing and adherence to standards of conduct and performance.

Add a clash of cultures and the situation could look too hot to handle. For example, how banks can maintain due diligence and still promote a proactive sales environment makes for an interesting debate, not to mention a quandary in need of resolution.

Nowhere near the least of anyone's priorities is the customer. The biggest challenge for the amalgam of banking and insurance is sure to be attracting the end user to its products and services. This challenge can be met only after some of these important industrial and regulatory questions are somewhat put to rest.

Banks today seem concerned with regionalization and are looking for increased fees and lower margins in what has become a substantially more competitive environment. Insurance companies are finding themselves ever more occupied in peddling more investment-type instruments. Whether the lines are blurring or aligning, the situation could result in a case of mistaken identity.

I've seen banking at its best and worst.

As a consultant in private business, I benefit from an up economy and an industry climate when institutions can retain my professional services. But as a state banking commissioner I witnessed and oversaw the closure of 91 institutions during my state's worst economic downturn since the Great Depression.

This chaos could have been avoided with just a little more foresight and perhaps common sense. In a lot of ways, we're quite possibly looking at an analogous situation.

Combining insurance with banking is a capital idea, but the time to address these questions is now. Neither side will benefit from passing the buck when there is a chance for both to find ways to co-exist profitably.

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