US financial deregulation from an insurer's viewpoint

Ralph Saul watches Wall Street's wild, deregulated financial-services race from a unique vantage point. From his offices high above midtown Manhattan he chairs CIGNA Corporation, America's second largest stockholder-owned insurance company (the product of a 1982 merger between Connecticut General and INA Corporation). Mr. Saul has headed the American Stock Exchange and was a high-level policymaker at the Securities and Exchange Commission.

Mr. Saul sees the financial-services race among bankers, insurers, and brokers (and even merchandisers such as Sears, Roebuck;) as the product of three basic factors:

* Technology has made sophisticated financial transactions much quicker and easier. When a huge data-processing plant is in place, Saul says, it seems logical that a company would want to run other financial business through it.

* Big financial companies are experiencing the fairly normal desire of big companies everywhere to diversify in order to reduce business risks. The total United States financial market - both debt and equity - amounts to $6.5 trillion today, he says.

* And government deregulation has sparked competition. He says the most important deregulatory move was the gradual removal of ceilings on interest rates banks can give depositors.

''Right now some see the market as the primary regulating mechanism,'' Saul observes. ''However, I don't think the market can ever be the sole regulating mechanism. Financial institutions have always been regulated, and eventually there will be a regulatory scheme to set the (new) rules of the game for financial conglomeration.''

Mr. Saul says the key to how this new era of reregulation occurs will be how the consumer is treated. If customers, clients, or policyholders are hurt, the rules will be changed. Thus it is imperative, Saul says, that financial corporations act responsibly today in informing customers how financial products work and what risks are involved, and in making sure corporations are solvent.

''It does get more complicated when you have a financial conglomerate,'' he says. ''The best example of that is in the Baldwin-United case. The complexity comes where you have a holding company with a number of different financial institutions under it. If one gets in trouble, the risk is that the holding company will want to 'dividend up' (pass on) the surplus from the healthy one to the unhealthy one. That may be all well and good for corporate purposes, but what does it do to the depositors, the shareholders, or the policyholders of the once-healthy part of the conglomerate?''

In his career, Mr. Saul has worn the hats of financier, banker, insurer, regulator, lawyer, and diplomat. Because CIGNA is a giant in the insurance field , it is worth watching to determine how insurers are faring in the race with banks and brokerage houses. Although insurance companies generally are more conservative than brokerage houses, Saul sees them as having moved toward diversification of services with deliberate speed.

''With the larger accounts, the insurance business already is more analogous to a banking business than to an insurance business. Basically, the retention of insurance is only part of the business. In some cases it's minimal or not at all. . . . On the asset side, we're like a commercial lender. We're writing mortgages, competing in medium-term loans with banks, and insurance companies have acquired some brokerage firms.''

Saul notes that under the guise of ''non-bank banks'' (banks that have been acquired so that, once commercial lending activities are stripped away, they can offer federally insured certificates of deposit, money market accounts, and mutual funds), insurance companies are already moving into the banking field. Meanwhile, he points out, banks have been restricted in their efforts to get into insurance and other financial businesses, although insurers have been getting into non-bank banks, securities, and investment banking. The most aggressive at poaching on others' land, of course, have been the securities firms, such as E. F. Hutton and Merrill Lynch.

At this point, Mr. Saul sees the self-regulating climate as able to produce ''more efficient and better service to the consumer at a fairer price through competition.'' He notes the concern of the Federal Reserve Board that when nondepository institutions get into the banking business, the Fed's control over monetary policy is diluted.

Much of the crossover by bankers, brokers, and insurers has been engendered by irreversible advances in technology: ''Technology has meant you can process higher volumes of business at lower unit costs. The firm with the higher transaction volume and the technological base has a competitive advantage - at least over the guy in the middle-sized market who is not able to compete in terms of processing the business. That becomes more and more of a factor as many of our products become more commodity-like.''

Technology also gives more people access to market information, Saul says, causing a blending of the retail and wholesale markets in the financial area. Consumers have immediate information on prices and other factors in both markets. This creates difficulties for the intermediary dealer, in whose interest it is to separate the retail and wholesale.

Moreover, technology links financial markets around the world and makes it very difficult for nation-states to control markets, since capital is transferred internationally in microseconds. The current problems with the strong dollar and the international debt show how important this linkage is.

''We are also observing,'' Saul notes, ''that when one's financial assets are dollar-denominated, as is the case with a great deal of wealth from around the world, there is a compelling economic interest in supporting this country's worldwide commercial position.''