N.J. Allows Agents to Use Out-of-State Banks for Premium Accounts

Insurance agents in New Jersey can now use banks outside of their own state for their premium trust accounts thanks to a recent law change.

The state formerly restricted New Jersey producers to placing their clients’ premium trust accounts only in banks located within the state. However, mergers and acquisitions in banking in the last several years meant agents have had fewer banks to work with. Also, agents were not able to take full advantage of Internet and electronic banking services. Transferring of premium accounts to banks based outside of New Jersey through the Internet was against the law.

As Thomas Ahart, president, Ahart Frinzi & Smith, contends, agents living in cities on New Jersey’s borders were not able to access banks just minutes away.

“People who are situated in places like Phillipsburg, N.J., which is right on the border of Pennsylvania, can go right across the river to use a Pennsylvania bank and sometimes get a better deal depending on what’s there,” he said.

New Jersey agents grew to believe that the requirement was unreasonable, according to leaders with the Independent Insurance Agents of New Jersey, New Jersey Auto Agents Alliance and the Professional Insurance Agents who lobbied for the change.

“With different banks being bought by others as well as the development of technology in terms of safely moving money, the landscape of the whole business has changed. So it was necessary to look at the rule and come up with a way that agents would have more of a choice with whom they do their banking business while providing a level of supervision that would make the Department of Banking and Insurance comfortable,” according to Michael Herlihy, president and chief executive officer of InsurBanc, which specializes in banking services for independent agencies.

The amendment allowing the use of out-of-state banks went into effect April 5.

While state officials acknowledge that the amendment could have an adverse economic impact on in-state financial institutions regarding producer trust accounts, they believe that any adverse impact will be more than offset by the flexibility awarded to licensed producers.