insurance policies within trust accounts, a study found. A Towers Perrin study titled "Bank Executive Survey on Trust-Owned Life Insurance Issues" found, for example, that only five of 100 banks surveyed knew that they could increase coverage for 75% of existing policies at no additional cost. Overlooking something that could be in a trust customer's best interest could be a liability to banks. "In most cases I think it's going to take someone having losses to really get their attention," said William M. Arnold Jr., principal and director in Towers Perrin's general management practice. Bank trusts account for about a third of the $1 trillion of life insurance in U.S. irrevocable trusts, according to Towers Perrin. Trustees buy these policies to serve the interests of the trust and its beneficiaries. Trusts typically buy policies from an outside agent, Mr. Arnold said. The agent, having received an up-front commission, has little ongoing interest in the policy, and the bank may neglect to thoroughly review it, he said. In some cases an underwriter has failed financially long before. "Typically, though, nothing happens until the individual dies," Mr. Arnold said. He said many banks simply do not have established methods for tracking changes that affect trust-owned life insurance, which is known by the acronym TOLI. In January 1997 the Office of the Comptroller of the Currency adopted rules to prompt additional reviews. It required an annual written review of all assets of a trust account, to determine whether they are appropriate. The Towers Perrin survey found that the OCC had indeed reviewed or commented on 28% of survey participants' TOLI programs. Austin D. Barney 2d, president of Trust Insurance Services of West Simsbury, Conn., said bankers should not overlook the risk to the reputation of their trust departments and fledgling insurance arms. "In the rush to sell new insurance, banks are overlooking a tripping step," Mr. Barney said. "The vast majority of the industry has been enormously lax in overseeing the insurance products in those trusts." So far, cases have been settled out of court, but when a lawsuit or class action suit inevitably arises, it will give the whole bank a black eye, Mr. Barney said. "The investment in the new insurance sales operation will go right down the drain if the bank is found to be a poor trustee," Mr. Barney said. In addition to changing load structures to retain agent interest, some suggest that banks could use their own insurance units to sell insurance to trusts. Kathleen W. Collins, Washington counsel for the Financial Institutions Insurance Association, said that as long as self-dealing rules are followed, it is possible to do that. But the product price must be on a par with outside offerings, and the product must suit the trust's needs, Ms. Collins said. The trust customer is likely to have many relationships with the bank, she said, and a bank agent might therefore have additional incentive to regularly review that customer's insurance than an outside agent might.

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