ALBANY, N.Y.—An agreement to merge insurance and banking regulatory authorities in New York prompted different reactions from risk managers and insurers.

While risk managers remain somewhat leery that the proposal might blunt insurance regulation in the state, insurer trade groups were pleased the final proposal was downsized from its original version.

The proposal to create one regulatory agency for banking and insurance was part of the state's budget, which was passed last week.

The final version differed from the original proposal that would have included the state's Consumer Protection Board in the new agency, which will be called the Department of Financial Services.

Still, the merger of banking and insurance regulatory agencies in New York might affect insurance regulation, according the Risk & Insurance Management Society Inc.

“Our hope is that the blending of these two regulatory agencies won't reduce the insurance department's effectiveness as they pursue their primary mission of protecting the insurance-buying consumer,” said John R. Phelps, board liaison, fort the RIMS external affairs committee and director-business risk solutions at Blue Cross and Blue Shield of Florida Inc. in Jacksonville.

Insurer group, though, welcomed the final version of the proposal that was passed.

Originally, Gov. Andrew Cuomo sought to consolidate the functions, operations and staff of the two departments into one agency, including those of the state's Consumer Protection Board. He hoped the new department would close regulatory gaps and have the power to review all financial products and services, rather than be limited to certain kinds, according to his office.

After that proposal was released this year, 14 trade organizations representing the insurance and banking industries, including the New York Insurance Assn. Inc., got together to see what changes they collectively wanted to see in the proposal. Then they lobbied.

“The concerns we had originally were that there was a duplication of the enforcement power” to such a degree that the new department would be comparable to the Attorney General's Office, said Thomas E. Workman, president and CEO at the Life Insurance Council of New York Inc. He added that overall his group had supported the idea of consolidating the department, however.

Lawmakers “made some significant changes that the industry was seeking,” said Ellen Melchionni, president of the NYIA, which represents the property/ casualty industry. “We worked closely with the governor and the legislature on crafting something that would help keep business in New York and make it an attractive place to do business.”

Although downsized, the new department still will have a unit charged with fighting financial fraud against consumers, and will take steps such as developing a new complaint-tracking database. The governor has until Oct. 3 to nominate someone to serve as superintendent of the entity he created. The nominee would later have to be approved by the New York Senate.

Establishing the Department of Financial Services was one of several attempts to improve government efficiency Gov. Cuomo proposed as part of his 2011-2012 state budget. But the state Banking and Insurance departments have long paid their own expenses mainly with fees charged to the industries they monitor, and the insurance department even allocated some of its funding to other government programs in recent years, triggering protests by industry trade groups. The new department will charge insurance companies and banks for assessments in a similar way to the current agencies, according to experts.

“Combining the department gives us the chance to modernize and streamline regulation,” said a spokesman for Gov. Cuomo. Over the long-term, the merger will achieve cost-efficiencies by integration of systems, administration and overhead expenses. Such moves can lower the cost of assessments that regulators make on financial services firms, which means lower fees for the industry and more reason to do business in New York, he said.

Gov. Cuomo isn't the first to propose a combination of departments. Florida, for example, merged its Departments of Insurance, Treasury, State Fire Marshal and Department of Banking and Finance into a Department of Financial Services in January 2003. Most states, however, keep their banking and insurance agencies separate.