Even as their interest in debt cancellation and suspension products grows, banks and insurers are facing challenges from insurance regulators.

Though the Office of the Comptroller of the Currency and several courts have held since 1963 that these are not insurance products -- and therefore not subject to state insurance regulations -- that could change when the National Association of Insurance Commissioners takes up the issue.

The association's market conduct and consumer affairs committee will vote in December on pursuing the issue, said Robert Martin, a spokesman.

Debt cancellation and suspension products are contracts between borrowers and creditors that cancel or suspend a debt because of events such as death, unemployment, disability.

They differ from credit life insurance -- a mainstay of banks selling insurance --in that they are contracts between the bank and the customer, and involve no third-party insurer. And since the state-by-state insurance regulations that apply to credit life do not cover debt cancellation and suspension, the debt contracts can be less expensive to sell across many states.

The involvement of the National Association of Insurance Commissioners is likely to deter banks that were exploring this product line, said Kenneth Kehrer, a Princeton, N.J.-based consultant. However, he added, "some aggressive banks will jump in and get in on it anyway."

Banc One Insurance Group is evaluating its options with both products, said Glen Milesko, president of the Bank One subsidiary. The draw is the opportunity to sell a uniform product across a large area.

"Because it is not credit insurance, we wouldn't be burdened by the patchwork quilt of all the (state) laws," he said.

But Mr. Milesko said as a first move he's leaning toward debt suspension, because "it's clearly not insurance in terms of what the comptroller has said; it gets a little bit more complicated when you go to debt cancellation."

William Burfeind, an executive vice president with Chicago-based Consumer Credit Insurance Association, said his group filed an amicus brief in a 1990 Eighth Circuit Case, First National Bank Eastern Arkansas vs. Taylor. His succinct description of the group's position highlights the opinion of many credit insurers.

"We argued that it looked like insurance, smelled like insurance, but the court found otherwise," said William Burfeind.

Since the decision, the trade group has taken a neutral stance, he said. And while there are no data outlining how many institutions are selling the products, Mr. Burfeind said more and more of his group's 200 insurance members are losing client share to such products.

One company that decided not to fight the trend is Reliance Group Holdings of New York. While it offers credit life through Reliance Life Insurance Co., a year ago it formed Reliance Integramark of Alpharetta, Ga. The group has 26 employees and administers warranty as well as debt cancellation and suspension products.

W. Michael Balsley, senior vice president of Reliance Integramark, said a large part of his job has been assembling data on the product offerings and state regulatory findings. He also spends a lot of time with potential bank customers looking at the downside of the offerings.

Bank One's Mr. Milesko said the risks of offering the products are considerable. State insurance commissioners -- and some consumer groups -- might be antagonized, he said.

Consumer groups may argue that these products, whose rates are not regulated, offer banks higher revenues than credit life insurance, Mr. Balsley said. The argument assumes that banks charge the highest fees possible, he said, and if that did occur "the marketplace would force you to the table."

Mr. Kehrer says the products are a "clever" way to escape the regulations banks face, but was skeptical about their ultimate popularity.

"These approaches tend to be stopgap and they eventually kind of run out of running room," he said.

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