Commissioner’s Bulletin # B-0005-00

On November 12, 1999, the President signed into law an act which makes significant changes to the delivery of financial services in the U.S. Based on the provisions of the new law, several provisions of the Texas Insurance Code are preempted as applied to depository institutions and other affiliated entities who wish to exercise powers granted under federal law to engage in the business of insurance in Texas.

Because I must continue to carry out my responsibility to regulate the sale of insurance in Texas and the Legislature may not have the chance to act on these issues for several months, I believe it is in the public interest to provide interim guidance for the licensing of depository institutions and other affiliated entities as insurance agents in this state.

The Texas Insurance Code as it currently exists does not contemplate that depository institutions may engage in the business of insurance to the extent provided in the new federal law. As a result, the Gramm-Leach-Bliley Act creates a statutory preemption of several licensing provisions in the Texas Insurance Code. In response to a spate of recent inquiries from the Texas insurance industry concerning the new legislation, I believe it prudent to provide an outline of licensing guidelines which reflect the new federal framework. These guidelines are intended to assist the Texas insurance industry in making informed business decisions under the new federal law until the Texas Legislature can consider appropriate statutory changes.

The purpose of this bulletin is to outline the Department´s interim guidelines for the licensing of depository institutions and other affiliated entities as insurance agents in Texas in compliance with the provisions of the Gramm-Leach-Bliley Act. The bulletin does not attempt to answer all questions that may arise as activities are expanded in this arena. The Department of Insurance will address other questions on an individual basis.

These guidelines are interim only. These guidelines are not intended to and do not create a class of licensees whose status must be "grandfathered" into any statutory scheme that may be adopted by the Texas Legislature. Neither the existence of nor compliance with the interim guidelines confers any property or other rights on licensed entities other than the right to conduct the business of insurance in accordance with these interim guidelines until they are superceded or terminated.

Preemption of Certain State Laws

The Texas Insurance Code definition of "bank" is preempted by §104(d)(2) of the Gramm-Leach-Bliley Act to the extent that the Insurance Code does not contemplate that a savings association," as defined in 12 U.S.C. §1813, may be licensed as an insurance agent in Texas. As a result of this preemption, a "savings association" may obtain an insurance agent´s license under the same laws and regulations that apply to the licensing of a "bank."

As of March 12, 2000, the Texas Insurance Code definition of "bank" is preempted by §104(d)(2) of the Gramm-Leach-Bliley Act to the extent that the Insurance Code does not contemplate that a "financial holding company," as defined in section 2 of the Bank Holding Company Act of 1956, as amended by the Gramm-Leach-Bliley Act, or a "financial subsidiary," as defined in section 121 of the Gramm-Leach-Bliley Act, may be licensed as an insurance agent in Texas. As a result of this preemption, a financial holding company or a financial subsidiary may obtain an insurance agent´s license under the same laws and regulations that apply to the licensing of a "bank."

The Texas Insurance Code definition of "bank" is preempted by §104(d)(2) of the Gramm-Leach-Bliley Act to the extent that the Insurance Code does not authorize the issuance of an agent´s license to a "state bank," as defined in 12 U.S.C. §1813, organized under the laws of a state other than Texas. As a result of this preemption, a "non-resident state bank" may obtain an insurance agent´s license under the same laws and regulations that apply to the licensing of a "bank."

The place of 5,000 restriction in the Texas Insurance Code is preempted by §104(e) of the Gramm-Leach-Bliley Act. The place of 5,000 restriction as a state law licensing requirement is preempted because it discriminates against a depository institution by adversely impacting the depository institution when compared to other persons providing the same products and services that are not depository institutions. As a result of this preemption, a depository institution, as defined in 12 U.S.C. §1813, "financial holding company," "financial subsidiary," or "operating subsidiary" of a depository institution may obtain an insurance agent´s license in Texas without regard to the geographical location of its business operations in this state.

Texas Insurance Code Article 21.07-3 is preempted by §104(d)(2) of the Gramm-Leach-Bliley Act to the extent that the Insurance Code does not contemplate that a depository institution, financial holding company, financial subsidiary or operating subsidiary of a depository institution may be licensed as a managing general agent in Texas. As a result of this preemption, any of these entities may obtain a managing general agent´s license by complying with the statutory requirements outlined below.

The provision of Texas Insurance Code Article 21.07-3 §4(a) requiring each applicant for a managing general agent´s license to be a resident of Texas is preempted as applicable to a depository institution, financial holding company, financial subsidiary or operating subsidiary of a depository institution. The preemption results from §104(e)(3) of the Gramm-Leach-Bliley Act which provides that no state law may effectively prevent a depository institution or affiliate from engaging in insurance activities authorized by the Act. As a result of this preemption, a depository institution, financial holding company, financial subsidiary, or operating subsidiary of a depository institution may obtain a managing general agent´s license in accordance with these guidelines without regard to the Texas residency requirement in Article 21.07-3 of the Texas Insurance Code.

The provision of Texas Insurance Code Article 21.07-3 §5(h) prohibiting a bank, bank holding company, or a subsidiary of either entity from owning a managing general agency is preempted by §104(e) of the Gramm-Leach-Bliley Act. This ownership prohibition is preempted because it discriminates against a depository institution by adversely impacting the depository institution when compared to other persons providing the same products and services that are not depository institutions.

As a result of this preemption, a depository institution, financial subsidiary, or operating subsidiary of a depository institution that is properly licensed in Texas as a managing general agent may own a licensed managing general agency. The managing general agency owned in whole or in part by such entity must be licensed according to the requirements set out in the Texas Insurance Code except that the residency requirement in Article 21.07-3 is preempted with respect to the depository institution, financial subsidiary, or operating subsidiary that is a shareholder, member, or partner of the managing general agency.

Interim Guidelines for Issuance of a License to a Depository Institution or Operating Subsidiary of a Depository Institution to Act as an Insurance Agent in Texas

A depository institution, as defined in 12 U.S.C. §1813, or an operating subsidiary of a depository institution, as defined in section 2 of the Bank Holding Company Act of 1956, may be licensed as a Life, Accident & Health insurance agent in this state under the requirements set out in Texas Insurance Code Article 21.07-1 §4(f) except the following shall not apply as a result of the federal preemption:

1. The definition of "bank" in Article 21.07-1 §1C;
2. The provision in Article 21.07-1 §4(f) that prohibits a bank licensed as an agent from operating additional offices from which the business of insurance is conducted in a place with a population exceeding 5,000; and
3. The provision in Article 21.07-1 §1C that prohibits a bank operating subsidiary from owning a licensed corporate agent located in a place with a population exceeding 5,000.

A depository institution, as defined in 12 U.S.C. §1813, or an operating subsidiary of a depository institution, as defined in section 2 of the Bank Holding Company Act of 1956, may be licensed as a Life, Accident & Health insurance agent in this state under the requirements set out in Texas Insurance Code Article 21.07 §2(e) except the following shall not apply as a result of the federal preemption:

1. The definition of "bank" in Article 21.07 §1C(a);
2. The provision in Article 21.07 §2(e) that prohibits a bank licensed as an agent from operating additional offices from which the business of insurance is conducted in a place with a population exceeding 5,000; and
3. The provision in Article 21.07 §1C(b) that prohibits a bank operating subsidiary from owning a licensed corporate agent located in a place with a population exceeding 5,000.

A depository institution, as defined in 12 U.S.C. §1813, or an operating subsidiary of a depository institution, as defined in section 2 of the Bank Holding Company Act of 1956, may be licensed as a property & casualty insurance agent in this state under the requirements set out in Texas Insurance Code Article 21.14 §3(d) and associated regulations except the following shall not apply as a result of the federal preemption:

1. The requirements set out in Article 21.14 §3(d)(1);
2. The provision in Article 21.14 §3 that prohibits a bank licensed as an agent from operating additional offices from which the business of insurance is conducted in a place with a population exceeding 5,000;
3. The definition of "bank" set out in Article 21.14 §3(g); and
4. The provision in Article 21.14 §3(g) that prohibits a bank operating subsidiary from owning a licensed corporate agent located in a place with a population exceeding 5,000.

As a result of the federal preemption, a depository institution, as defined in 12 U.S.C. §1813, or an operating subsidiary of a depository institution, as defined in section 2 of the Bank Holding Company Act of 1956, may be licensed as a managing general agent in this state by satisfying the licensing requirements in Article 21.14 which apply to the licensing of a depository institution as a property & casualty agent.

A depository institution, as defined in 12 U.S.C. §1813, or an operating subsidiary of a depository institution, as defined in section 2 of the Bank Holding Company Act of 1956, may become a licensed insurance agent in Texas by complying with all applicable licensing requirements set out in the Texas Insurance Code except the following shall not apply as a result of the federal preemption:

1. the currently required statutory organization;
2. the Texas residency requirement; and
3. the individual licensing of all officers, directors, shareholders, members, managers, and partners.

As a result of the federal preemption, an insurance agency owned in whole or in part by a depository institution must be licensed according to the requirements set out in the Texas Insurance Code except the Texas residency requirement will not apply to a depository institution or operating subsidiary of a depository institution.

As with all other licensed insurance agents, a depository institution or operating subsidiary of a depository institution and their employees who are engaged in the business of insurance must hold the appropriate license for each line of insurance being offered.

Interim Guidelines for Issuance of a License to a Financial Holding Company or Financial Subsidiary of a Depository Institution to Act as an Insurance Agent in Texas

As of March 12, 2000, a "financial holding company," as defined in section 2 of the Bank Holding Company Act of 1956 as amended by the Gramm-Leach-Bliley Act, or a "financial subsidiary" of a depository institution, as defined in section 121 of the Gramm-Leach-Bliley Act, may become a licensed insurance agent in Texas by complying with the licensing requirements set out in the Texas Insurance Code applicable to a "bank."

Under the provisions of Section 103 of the Gramm-Leach-Bliley Act, a "financial holding company" may own a licensed insurance agency. The insurance agency owned in whole or in part by a financial holding company must be licensed according to all requirements set out in the Texas Insurance Code except the requirement that all shareholders must be individually licensed is preempted with respect to a financial holding company.

Financial holding companies, depository institutions, financial subsidiaries and operating subsidiaries of depository institutions that are licensed and selling insurance in Texas under authority provided by the Gramm-Leach-Bliley Act are subject to all consumer protection requirements imposed by Texas law, including Articles 21.21, 21.21-9, and 21.48A of the Texas Insurance Code and the regulations enacted thereunder. Many of the measures required to protect against possible consumer abuses and unfair competition by a lender who is also selling insurance are included in the federal anti-tying provisions of 12 U.S.C. §1972, and the disclosure provisions of the February 15, 1994, Interagency Statement on Retail Sales of Nondeposit Investment Products, issued jointly by federal bank regulatory agencies. Adherence to these standards will not provide an exemption from compliance with state laws and regulations applicable to insurance agents.

All entities addressed in these interim guidelines are encouraged to carefully review the federal and state laws governing the business of insurance to ensure compliance with all applicable federal and state requirements.

To obtain agent license applications, call 512-322-3503 or visit the Department´s web site at www.tdi.state.tx.us.

To notify the Department of Insurance of a change in ownership of an agency, write to:

Texas Department of Insurance
Licensing Division
P. O. Box 149104
Mail Code 107-1A
Austin, Texas 78714-9104

To notify consumers of how to file a complaint with the Department of Insurance, include the following information:

Texas Department of Insurance
Consumer Protection Program (111-1A)
P.O. Box 149091
Austin, Texas 78714-9091
Phone: 800-252-3439 In Austin, call 463-6515
Fax: 512-475-1771

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Jose Montemayor
Commissioner of Insurance