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Letter 38: Insurance Services of Wisconsin Banks

Historically, Wisconsin Banks have offered a number of insurance services and in recent years they have begun to offer an increasing variety of these services. Insurance services include the solicitation, negotiation or placement of any line of insurance or annuities on behalf of an insurer or on behalf of a person seeking insurance or annuities, as well as advising other persons about their insurance needs or coverage. This Interpretive Letter contains general guidance as well as specific procedures to be followed by Wisconsin state chartered banks offering or proposing to offer insurance and related services. It also discusses certain attendant supervisory concerns and legal issues.

Traditionally, commercial banks in Wisconsin have sold various forms of life insurance, property insurance, unemployment insurance, and mortgage guarantee insurance in connection with both commercial and consumer loans. Moreover, banks and employees of banks are expressly authorized to be licensed by the Commissioner of Insurance as insurance intermediaries and to offer a full range of insurance services to the general public. (Section 221.04(9), Wis. Stats.) Each bank, bank subsidiary, or bank employee who provides insurance services must observe the applicable licensing requirements of the Office of the Commissioner of Insurance and comply with applicable insurance laws and rules.

A bank may provide insurance services at its home office, authorized branch offices, and other locations, provided the bank does not make loans, accept deposits, provide trust services other than as permitted by Sec. 221.04(6), Wis. Stats., or cash checks or other negotiable instruments at such other locations. A bank may organize or acquire a corporate subsidiary for the purpose of providing insurance services if it first obtains written approval of the Commissioner of Banking and otherwise complies with Bkg. 3.04.

In order to avoid any possible conflict of interest, any commissions earned on the sale of insurance by any officer or employee of a bank must be paid directly to the bank. (See also Bkg. Ltr. #7, 5/12/69). Bank officers or employees employed solely for the purpose of selling insurance products may be compensated on a commission basis. Those officers or employees who are paid on a commission basis shall have no lending authority. A bank may institute a bonus or incentive program under which other employees receive payments based upon their sale of insurance products provided the payments are not made more frequently than quarterly and the amount received by any one employee during one year does not exceed 5% of the recipient's annual salary or 5% of the average salary of all officers and employees participating in the incentive program, whichever is greater. Employees of insurance subsidiaries of a bank may be compensated on a commission basis.

Bank officers and employees may be compensated on a commission basis for the sale of fixed rate annuities, without regard to other restrictions on the payment of commissions in this letter. The bank shall not provide a loan to the customer, the purpose of which is for the purchase of the annuity, and the annuity may not be assignable or used as collateral on a loan. At the time of the sale of the annuity, the bank must disclose the following information to the customers:

(1) whether or not there is a guaranteed rate of return on the annuity and its amount;

(2) the liquidity of the annuity (the ability and/or limitations to withdraw funds and any associated penalties);

(3) whether or not the annuity funds are covered by FDIC insurance.

Except with respect to insurance which insures a bank against loss in connection with a particular loan, and mortgage or title insurance, no officer or employee of a bank who personally approves a borrower's application with respect to a particular loan may sell any insurance to the borrower at the time a loan is made. The time a loan is made includes any time from the date of the loan application to the date of the loan closing.

The Wisconsin Consumer Act, Chs. 421 through 427, Wis. Stats., requires certain disclosures by creditors who sell insurance which is financed as part of a consumer credit transaction. It also limits the types of insurance which may be sold in connection with the transaction and the premiums which may be excluded from the finance charge. (See Sec. 422.202, Wis. Stats.; Bkg 80.26 and Official Interpretation #4). It further limits commissions that may be paid to an employee of a creditor who participates in the processing of consumer credit transactions that exceed an amount equal to 25% of the employees annual earnings for the sale of insurance in connection with those consumer credit transactions. (See Sec. 424.502, Wis. Stats.). This letter is not intended to alter those disclosure requirements or to modify those limitations.

While a bank may be licensed as an insurance intermediary, and offer insurance services, this letter may not be construed to imply that a bank may underwrite insurance policies or invest in any corporation which underwrites or issues any type of insurance policies.

Bkg. Ltr. #38A, September 8, 1989, Commissioner Sherry