Financial Institution Insurance Activities 2005-Do the Risks Outweigh the Rewards?

With the consummation of the historic acquisition of Citicorp by The Travelers in 1998, permitted by the Gramm-Leach-Bliley Act of 1999, many thought the long-awaited rewards of a marriage between banks and insurers had finally arrived. However, as with all rewards, there are risks. For depository institutions and their affiliates now directly engaging in insurance activities, these risks include potentially lower-than-expected earnings from insurance underwriting, disputes among federal and state regulators as to who should regulate banks conducting insurance activities, and regulatory enforcement actions and litigation regarding the propriety of certain insurance and annuity sales activities. These risks are not insubstantial and, as a result, it appears that the honeymoon is over for banks and their affiliates directly engaging in insurance activities. Reevaluation of these risks and the measures necessary to manage them is imperative if the expected synergies from financial institutions engaging in insurance activities are to be realized.