Legislature(1993 - 1994)
04/13/1993 03:00 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
Number 415 SB 149 REVISION OF BANKING CODE WILLIS KIRKPATRICK, DIRECTOR, DIVISION OF BANKING, testified in support of SB 149. Mr. Kirkpatrick stated that the current Alaska Banking Code was critically obsolete. The existing code was taken from Oregon law at the time of Alaska statehood and has had only minor revisions since then. The Division of Banking, Securities, and Corporations has for the past few years been working to identify areas where changes in the code are needed. These changes fall into three basic categories: 1) obsolescence concerning today's financial institution marketplace; 2) obsolescence in addressing problems or failing banks; and 3) the need for a banking law that could provide additional economic development opportunities. MR. KIRKPATRICK went on to explain these changes in detail. (the details are in a position paper in the committee files) Number 560 MICHAEL BURNS, PRESIDENT, KEY BANK, testified in support of SB 149. Mr. Burns spoke specifically on the section of the bill which would allow the banking industry to sell insurance. Mr. Burns stated that this section would allow the banking industry to compete much the same as Allstate, the insurance company, competes with the banks in providing loans. Mr. Burns stated that he didn't see any reason that banks should be prohibited from competing in the insurance market. MR. BURNS stated that the committee would hear the argument that banks could be in the position of exerting undue influence on loan applicants to purchase insurance from them, but Mr. Burns believes this argument is wrong as the bill contains anti-tie-in clauses that would prohibit this. REP. MACKIE questioned how the banking industry expected small independent insurers to stay in business with the banking industry competing. TAPE 93-38, SIDE A Number 001 MR. BURNS replied that the market place would take care of itself. If the banking industry doesn't provide a better product, then the insurance agency will get the business. Number 005 RICHARD HARDCASTLE, PRESIDENT, HARDCASTLE/DAVIES INSURERS OF KETCHIKAN, testified against the section of SB 149 that would allow banks to sell insurance. Mr. Hardcastle said he believes allowing banks to sell insurance was unfair competition and pointed out two of the more important reasons: 1) large capitalized institutions have a tremendous number of captive prospects in their existing files can use their influence to sell them insurance; and 2) loan applicants would feel obligated to buy insurance from banks in order to get the loan. Number 020 MR. HARDCASTLE stated that the banking industry suggests that the anti-tie-in provisions in law would prevent any problems, but as a practical matter they just don't work. Number 025 MR. HARDCASTLE suggested the committee delete the section of the bill allowing banks in the insurance business and pass the bill out. Number 050 ALAN SHATTUCK, PRESIDENT, SHATTUCK AND GRUMMET INSURANCE, spoke against sections 2, 4 and 5. Mr. Shattuck said he believes these sections take too much of the legislative oversight away and put it into regulations. MR. SHATTUCK dittoed Mr. Hardcastle's remark that anti-tie- in laws do not work well. Number 073 HOWARD JAEGAR, VICE PRESIDENT, SHATTUCK AND GRUMMETT, AND PRESIDENT OF ALASKA INDEPENDENT INSURANCE AGENTS AND BROKERS, stated that his group was against allowing banks to sell insurance. Mr. Jaegar added that allowing banks to sell insurance was in direct conflict to the very businesses they hold deposits for or lend money to. MR. JAEGAR stated that allowing large banking organizations to compete with local merchants. Because banks control the extension of needed credit, they have unlimited access and there would be a temptation to exert coercion to sell other products. Number 158 REP. MACKIE stated that it was his belief that small insurers would be hurt and he therefore moved to delete page 24, line 18, of section 47. Number 230 REP. PORTER objected and expressed his concern that he didn't have enough information yet and he would like to hear from the other persons waiting on teleconference. Number 257 REP. GREEN added that he wanted further information of sections 4 and 5 of the bill. Number 280 KAREN HOFSTAD, INDEPENDENT INSURER, testified from Petersburg and noted that she had sold insurance in another state that allowed banks to sell insurance and she saw that it caused a lot of conflict and abuse. Ms. Hofstad stated that when banks loan money and provide insurance, there is a subtle indication that the person or business should buy from the bank. MS. HOFSTAD suggested the committee delete sections 2, 4 and 5 from the bill. Number 305 SUSAN ERICKSON testified from Petersburg and echoed Ms. Hofstad's comments. Number 310 JIM SARVELA, CHIEF FINANCIAL OFFICER, 1ST BANK, testified from Ketchikan that his concern was that banks be on an equal playing field with other institutions. Mr. Sarvella pointed out that the other institutions that primarily sell insurance also make loans. This bill would give all the participants equal opportunities in the marketplace. Number 330 JACK DAVIES, HARDCASTLE AND DAVIES INSURANCE, stated the impact of section 2 is anti-consumer. Mr. Davies added that as far as he knew there was never a consumer coming before asking that banks be allowed to sell insurance. Number 343 CRAIG INGHAM, PRESIDENT OF MT. MCKINLEY BANK, noted that currently Allstate, State Farm, etc., are involved in the credit side of the equation in offering loans. Mr. Ingham further stated that the banks would create a separate corporation or subsidiary to sell this insurance, which would alleviate any undue pressure a borrower might feel. Number 368 GORDON DEPUE urged deletion of section 2 of the bill. Mr. Depue said he does not believe that anti-tie-in provisions would prohibit the banks from pressuring customers to buy insurance on property they are borrowing from them for. Number 374 GARY ROTH, PRESIDENT, DENALI STATE BANK, testified that SB 149 should pass as is. Mr. Roth said he believed that this was a turf war and that compromise was not possible. Number 416 JOHN SWEENEY echoed comments above against section 2 of the bill. Number 431 DAVID STRATTON, PRESIDENT, ALASKA LIFE UNDERWRITER, stated that section 2 must be deleted. Mr. Stratton quoted Senator Murkowski as being against banks getting into the insurance industry. Number 451 KEITH SILVER stated that he supports the removal of section 2 of SB 149. Mr. Silver dittoed the remarks of Mr. Stratton and the others. Number 460 JOHN GEORGE, REPRESENTING THE AMERICAN COUNCIL OF LIFE INSURANCE, testified that an asset that the independent insurance agent has is his expiration dates. Mr. George explained that this is a list of all the policy holders and the dates their policies expire. Mr. George pointed out that if section 2 passes it would in effect give the independent insurance agencies' most tightly guarded secret away to their competitor. Mr. George suggested that this would give an unfair advantage to the competitors. MR. GEORGE pointed out that sections 4 and 5 should be deleted also to eliminate the possibility of a back door opening for banks to get into the insurance business. Number 485 REP. MACKIE responded that according to Mr. Kirkpatrick deleting section 2 would be sufficient since federal law specifically requires that insurance sales be specifically allowed in state statute. REP. PORTER removed his earlier objection to Rep. Mackie's amendment to delete section 2 from the SB 149. REP. SITTON moved SB 149 with individual recommendations, fiscal note and unanimous consent. No objections were heard; it was so ordered. CHAIRMAN HUDSON adjourned the committee at 5:15 p.m.