Karol K. Sparks, Esq.
Barack Ferrazzano Kirschbaum
Perlman & Nagelberg
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
Dear Ms. Sparks:
This responds to your letters requesting confirmation that financial holding companies ("FHCs") may engage in the insurance claims administration and insurance risk management activities described below under section 4(k)(4)(B) of the Bank Holding Company Act ("BHC Act") (12 U.S.C. � 1843(k)(4)(B)).
In particular, you have asked whether an insurance agency owned by a FHC may engage in the following claims administration activities in connection with its insurance sales activities:
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collecting insurance premiums;
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holding insurance premiums in trust;
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establishing an insurance claims paying account;
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adjusting insurance claims (which would include obtaining facts about claims, investigating the veracity of claims, and estimating losses relating to claims);
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negotiating with insureds and their representatives concerning insurance claims; and
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paying and settling insurance claims.
You have indicated that insurance agents typically perform these claims administration services for an insurance underwriter in connection with insurance policies sold by the agents on behalf of the insurance underwriter.
You also have asked whether an insurance agency or broker owned by a FHC may provide the following insurance risk management services in connection with its insurance sales activities:
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assessing the risks of a client seeking insurance and identifying the client's exposures to loss;
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designing programs, policies, and systems (such as workplace safety programs) to reduce the client's risks;
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advising clients about risk management alternatives to insurance (such as self-insurance, securitization, or derivatives); and
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negotiating insurance coverages, deductibles, and premiums for an insurance client.
You have represented that insurance agents and brokers provide these risk management services to their customers in connection with the sale of insurance products, including in particular commercial property and casualty insurance.
Section 4(k)(4)(B) of the BHC Act defines "[i]nsuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent, or broker for purposes of the foregoing, in any State" as activities that are financial in nature and, therefore, permissible activities for FHCs (12 U.S.C. � 1843(k)(4)(B)).
Most States require a person performing one or more of the insurance claims administration services listed above to be licensed by, or registered with, the appropriate insurance authority of the State either as an insurance company, an insurance agent, or a third party administrator ("TPA").1 The legislative history of the GLB Act also suggests that Congress believed that insurance-related claims administration services are a necessary part of the insurance sales and underwriting activities authorized by section 4(k)(4)(B).2
Although State insurance laws generally do not require companies that provide insurance risk management services to obtain a special insurance license, States generally require a license of any person that negotiates insurance coverages, deductibles, and premiums for another.3 As noted above, you also have represented that insurance agents and brokers offer the insurance risk management services listed above in connection with their other insurance sales activities. In addition, we understand that the proposed insurance risk management services relate to managing insurable risks, are advisory in nature, and would not allow the risk manager to control, or perform operations of, its clients.
In light of these and all other facts of record, Board staff believes that the specific insurance claims administration services listed above are encompassed within the insurance activities authorized by section 4(k)(4)(B) of the BHC Act, and thus may be conducted by a FHC, when provided by an insurance agent or broker in connection with its other insurance sales activities. In addition, Board staff believes that the specific insurance risk management services listed above are encompassed within section 4(k)(4)(B) insurance activities, and thus may be conducted by a FHC, if the services are provided by an insurance agent or broker in connection with its other insurance sales activities, involve managing insurable risks, are advisory in nature, and do not allow the FHC to control, or perform operations of, the person to which the services are provided.4
This opinion addresses only the permissibility of the activities listed above under the BHC Act, and does not address other issues or the permissibility of any other activities under the BHC Act. If you have any questions about this matter, please contact Mark E. Van Der Weide, Counsel, (202) 452-2263, or Maya Y. Wilson, Attorney, (202) 452-3818, of the Board's Legal Division.
Sincerely,
(signed) J. Virgil Mattingly
J. Virgil Mattingly
General Counsel
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Footnote
1. For example, the Model Third Party Administrator Statute adopted by the National Association of Insurance Commissioners ("NAIC") requires a person who collects premiums or adjusts or settles claims for an insurer in connection with the sale of life or health insurance policies or annuities to register with the relevant State insurance authority as a TPA if the person is not already registered with the State as an insurance company, agent, or broker. See NAIC Model Third Party Administrator Statute �� 1.A and 11 (1996). As of April 2000, thirty-eight States required persons acting as a TPA to obtain a license from, or register with, the insurance authority of the State. The NAIC's Model Managing General Agents Act also requires a person to register with the relevant State insurance authority if the person adjusts or pays claims for an insurer and engages in certain other activities on behalf of an insurer. See NAIC Model Managing General Agents Act �� 2.C and 3 (1993). Return to text
2. See H.R. Rep. No. 106-74, Part I, p. 122 (1999) ("Activities such as administering, marketing, advising or assisting with . . . claim administration or similar programs shall be deemed to be incidental to insurance activities as described in [section 4(k)(4)(B)]."). Return to text
3. See NAIC Producer Licensing Model Act �� 2.K and 3 (2000). Return to text
4. Staff also notes that a bank holding company or FHC may provide advice to customers concerning financial matters including insurance, self-insurance, securitizations, and derivatives under 12 CFR 225.28(b)(6) and may provide management consulting advice to customers regarding nonfinancial matters, such as workplace safety, subject to the limits and restrictions set forth in Regulation Y. See 12 CFR 225.28(b)(9) (management consulting activities permissible for all bank holding companies) and 225.86(b)(1) (management consulting activities permissible for all FHCs). Return to text
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