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 Wall between Banks, Insurance Coming Down, Dent Tells PIA The impenetrable wall between banking and insurance is coming down, according to a Fred C Dent, Jr., a former chief bank regulator for Louisiana, and bank customers and insurance policyholders are largely unaware of the implications of this structural shift in both sectors. Dent, who was Commissioner of the Office of Financial Institutions from 1987 through 1991, conducted a workshop Aug 19 on banks and insurance during the annual convention of the National Association of Professional Insurance Agents in Nashville. Hopefully, the crumbling means both lender and indemnifier will get in sync with the market place of tomorrow, according to Dent. Unfortunately, he said , the triad of business community bank customers and policyholders knows so little when it comes to the implications of the fusion of banks and insurance. "It's certain to make for an interesting mixture" Dent said, but "to characterize it as an oil-water blend is to think in haste; to see it as some sort of latent symbiosis is to oversimplify a multitude of issues." Somewhere, probably in the middle, he said there is understanding to be had and common ground to be shared. Dent believes both camps need to find the common ground soon, because the inevitability of the fusion raises a host of questions, challenges and opportunities for banker and "benevolence society man" alike. He told PIA members to consider the simple facts that banks are buying insurance agencies and insurance companies, such as State Farm, are going into the banking business. Add to such line crossing a deadly serious maverick like Bill Gates vowing to take over the banking business via the Internet while other seekers of new fortunes hunt for a new dollar or three, and "we're talking about something in a state of serious flux with persuasive implications," Dent said. Answers to questions , and more question to ask can be found in the differences and similarities of the two businesses, according to Dent. To the unversed observer, the difference might not be discernable, according to Dent, but banks make loans up front and collect interests in arrears, while insurance companies collect premiums up front and pay claims in arrears. Despite the differences, like first cousins, he said, there are enough resemblances. Banks underwrite loans much like an insurance company, or agent, would underwrite commercial and larger personal lines accounts. Banks renew loans just like insurance companies have renewal cycles. Both banks and insurance are impacted by "advanced accounting and predictor methodologies, as well as changing and enhanced technology." Once matters of industrial comparison and contrast are settled, Dent said then the financial services professional has to wrestle with that "necessary evil of a monster, regulation," he said. In most states, Including Louisiana, Dent said, insurance and banking are regulated by separate agencies. Sometimes these are headed by elected officials, but more often than not they are appointive. On the federal level, financial institutions are , in whole or in part, subject to oversight from the FDIC, Comptroller of the Currency, the Federal Reserve, and Securities and Exchange Commission. On the other hand, insurance companies are at best, subject only to peripheral (federal) government oversight and typically depend on trade groups for internal policing and adherence to standards of conduct and performance, according to Dent. "Add a clash of cultures (to the differing regulatory schemes), and the hot potato could look too hot to handle," Dent said. How banks can maintain due diligence and still promote a proactive sales environment for example, makes for an interesting debate, he said, not to mention, "a quandary in need of a resolution." These days, in Dent's opinion, banks seem concerned with regionalization, as well as looking for increased fees and lower margins in what has become a substantially more competitive environment. At the same time, insurance companies are finding themselves more occupied in "pedaling more investment-type instruments." Whether this could lead to "a case of mistaken identity," Dent said, depends on to whom one talks. During his career, Dent has seen banking at its best and worst. As a consultant in private business, he said, he benefits form an up economy and industry climate when institutions can retain his professional services. Dent is currently chairman of a Baton Rouge based consulting firm, Financial and Management Services. As state banking commissioner from 1987 through 1991, Dent closed 91 institutions during Louisiana's worst economic downturn since the Great Depression. Fortunately, he said, something strong ultimately came out of the economic disaster, but he believes some of the chaos could have been avoided with "just a little more foresight" and "common sense." In a lot of ways, he said, "we're looking at an analogous situation." In the final analysis, Dent believes the fusion of banks and insurance is a capital idea," but bears "careful examination, observation and re-evaluation." This site created by  
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