Is your Bank Owned Insurance Agency Compliant?

Most financial institutions in Michigan, as well as across the country, have formed operating subsidiaries and licensed the sub for insurance. While these agencies have been in existence for some time, many have not been top of mind. The covid pandemic has certainly not helped. As a result of this, and given the transparency that now exists at DIFS to monitor compliance, CBM recently launched a compliance model for banks with a licensed insurance subsidiary and for which JLH functions as the designated responsible licensed producer (DRLP).

For banks with agencies that were not involved in the CBM initiative, there are some key legal and compliance areas that need to be looked at.

A subsidiary conducting business in the state must be filed with LARA. Filing of an annual report is required with any changes to officers and directors disclosed. Typical operating agreements require annual meetings- at which time officers and directors are added or removed. Changes in resident agents or resident agents address must also be reported using form CSCL/CD-520.

Disclosures are also required to be filed with DIFS for the insurance subsidiary. Officers and directors and any changes must be disclosed- and reflect the officers and directors reported to LARA- as well as any change to the DRLP. All bank employees that sell insurance must also be disclosed- added or deleted. Some good news- agency insurance licenses are not required to be renewed in the State of Michigan.

Lack of compliance with many of these requirements can include cease and desist orders, fines, de-activation of the entity and/or revocation of insurance licensing.

If you have not revisited your insurance agency recently, perhaps now is a good time. CBM and JLH can assist.

If your bank does not have an insurance licensed entity through which to received commission from the sale of insurance products to its customers and receive referral commission share on insurance it may purchase?

We have talked much about the recent significant trend in vertical integration in banks-using insurance products related to bank lending activity to enhance the customer experience, create efficiencies and generate sustained streams of revenues.

This starts with having a licensed insurance subsidiary! Over the last few years, we have spent much of our time assisting other sectors of the financial services industry with the formation and insurance licensing of subsidiaries- especially the mortgage industry - that have the same objective: in this case, to create a legally licensed vehicle to be able to offer insurance products to their customers as an integral part of the mortgage transaction - and legally receive commission-based compensation. New, high tech, highly sophisticated white labeled platforms are now just recently available for Michigan community banks.

Having an insurance licensed agency can provide a source of recurring revenue as well as valuable customer service- with little effort or expense. Note: the objective is not to compete in the marketplace with local agents. It is simply to support core bank activities and enhance the customer experience.

Other key areas of potential utilization can include forming joint ventures with local insurance agencies. Referring bank customers to a highly trusted local agency for such products as commercial insurance coverages, crop insurance and estate based high end life insurance needs provide confidence for the customers- and referral share of commission to the agency.

Another easy, no-cost solution for community banks is utilizing customer affinity direct marketing programs. One of the most important direct marketed products historically has been Checking Account “free” accidental death (AD). Newly reformatted products have been introduced providing additional customer benefits and significant commission levels for bank agencies. This is an especially important, value add, no cost benefit as community banks look for ways to increase checking accounts as well as generating a recurring source on non- interest revenue.

Other direct marketing products have included term life insurance, final expense, prescription discounts and home warranty.

The bottom line is this. An insurance licensed agency is low cost, easy to maintain- and can provide the platform for material levels of revenue- and value add customer and core bank driven products.

If you do not have a licensed insurance licensed sub, we can assist in the formation and licensing. Easy, and low cost.

We welcome the opportunity to have these discussions with you.

Contact Kate Angles at your CBM office today at 517.336.4430 or kateangles@CBOFM.ORG or Jim Harvin at 517 351.4158 or jharvin@jlhassociatesllc.co.