U.S. Inquiry Over Insurers' Annuity Moves
By MICHAEL QUINT
The New York Times
January 27, 1995
The Justice Department said yesterday that its antitrust division had started investigating efforts by the insurance industry to prevent banks from issuing annuities, an increasingly popular form of retirement savings.
Justice Department lawyers are concerned about a campaign by life insurers and their large trade organization, the American Council of Life Insurance, to persuade state insurance regulators to prevent banks from issuing annuities that would be backed by Federal deposit insurance. The department is worried that the campaign may have illegally restrained trade and violated the Sherman Antitrust Act.
The investigation is believed to be the first by the Justice Department into the insurance industry since the McCarran-Ferguson Act of 1945, which exempted the insurance industry from Federal regulation and antitrust laws, except in cases of boycotts or restraint of trade.
The American Council of Life Insurance declined to comment on the investigation except to say that it was confident that it was abiding by antitrust laws.
Bank efforts to expand into the annuity business, where sales totaled more than $75 billion last year, have so far been limited mostly to the selling in their lobbies of annuities issued by insurance companies. Efforts by some insurers and insurance agents to prevent that activity were dealt a severe blow earlier this week when the Supreme Court ruled that annuities, for purposes of banking law, were a variety of investment or security, and not an insurance product. Annuities are investments that in exchange for a lump sum promise to pay specified amounts over the life of the holder.
Justice Department lawyers in charge of the investigation, including Robert E. Litan, a banking expert who in the past has advocated greater powers for banks, declined yesterday to discuss the investigation. But Gina Talamona, a spokeswoman for the antitrust division, said, "We have begun looking into the possibility of anticompetitive practices in the insurance industry as it relates to annuities."
The investigation arose from complaints by the American Deposit Corporation, a small, upstart Denver company that early last year began offering to help banks issue annuities with the same tax advantages as those sold by insurance companies, plus the additional benefit of Federal deposit insurance. Federal banking regulators had approved the annuities.
Annuities issued by insurance companies are backed only by the insurance company, and to a limited degree by state guarantee associations that handle claims against failed insurers.
Rick Fasold, president of American Deposit, said only three banks were currently issuing the annuities but eight had plans to do so. The issuing banks are the Blackfeet National Bank in Browning, Mont., the First National Bank of Santa Fe, N.M., and the National Bank of the Commonwealth in Indiana, Pa.
"We see the actions of the insurance industry as a concerted effort to use the state regulatory apparatus in an effort to delay and harass us," said Dennis M. Gingold, a Washington lawyer and co-owner of American Deposit.
Kenneth Anderson, a former lawyer in the antitrust division who now represents American Deposit, said the influence of the American Council of Life Insurers over state regulators, plus actions which he declined to identify, "are part of a conspiracy to prevent entry into a market that insurance companies regard as their own preserve."
Mr. Anderson said some documents presented by insurance regulators in court cases in different states showed "the exact same wording" and in one case still carried the identification of the American Council of Life Insurance fascimile machine.
American Deposit is involved in lawsuits with insurance regulators in New Mexico, Florida and Illinois, even though there are no banks issuing the annuities in the latter two states. Mr. Fasold said that "regulators in several other states have rattled their swords at me."
Mr. Anderson said bankers who are interested in the products "have all felt some heat."
J. Robert Hunter, former insurance commissioner of Texas and now an insurance adviser to the Consumer Federation of America, noted that banks and annuities had become "a real hot-button issue for the insurance industry." At a meeting last month of state insurance commissioners in New Orleans, he said representatives of insurers "were sliding letters under the door of every commissioner."
Daniel Sumner, a lawyer with the Florida Insurance Department, which issued an order to stop the sale of the American Deposit annuities before any bank in the state announced plans to do so, said the state was developing its own strategy and paying for its own expenses in that legal battle. He added, however, that the Florida department had asked the American Council of Life Insurers for advice on some legal issues and that the council had asked that it be allowed to intervene in the case because it was so deeply involved.