Ronald Reagan had it right: "Trust, but verify."
While most banks, insurance companies, and securities firms sleep, dreaming of financial modernization and affiliations and sighing comfortably over the insurance agent associations' proclaimed change of heart that "the old war between the insurance and banking industries is over," agent associations have been awake, busily waging war in half the states' capitals.
Since the Supreme Court's Barnett decision, agent associations have been on the alert, lobbying statehouses and insurance regulators to adopt legislation and regulations that would hamper banks in selling insurance. In Rhode Island the legislature passed the first new restrictive bank insurance law. Similar proposals in either legislative or regulatory form have now been introduced in at least 23 states.
Postured as consumer protection, these proposals are designed to establish pre-Barnett standards that maintain the agent associations' monopoly shelf life. When passed into law or finalized as regulation, each would require banks to file a separate request for an OCC preemption review-like that made by the Financial Institutions Insurance Association in Rhode Island. That requirement and court challenges will stymie bank entry into the insurance market.
When time comes to seriously negotiate specific financial modernization and affiliations provisions at the federal level, bankers and insurers will discover they have to lobby Congress for federal preemption of these new onerous state laws and regulations, a task to be dreaded. While pushing similarly restrictive provisions at the federal level, agent associations will then be in a position to demand "trade-offs" in the form of further restrictions on "incidental powers" and OCC interpretations and rule promulgations.
Agent associations will demand revisions in section 92 language, passed by a previous Congress, that authorized the comptroller of the currency to establish the regulations by which national banks conduct insurance agency activities. They will demand "states' rights" and state supremacy in passing rules they claim are only "consumer protections" but are really nothing more than anti-competitive measures designed to protect their oligopolistic market share. In the end, there may be no new federal law enabling modernization and affiliations because bankers and insurance company executives were asleep at the switch and allowed the agent associations to strip them, state by state, of their free-market insurance victories in the Barnett and Valic cases.
The situation is critical in many states, largely because financial institutions and insurance companies favorably disposed to the bank market have not made their voices heard in a unified and forceful fashion. Negative proposals have been introduced or already passed in many states, including Connecticut, Florida, Georgia, Illinois, Louisiana, Maine, and Minnesota
These state-based legislative and regulatory proposals pose major threats to bank and nonbank insurance marketing. They have serious defects in their:
Definition of "financial institution."
Restrictions on the sharing of customer information among financial institution affiliates, insurers, and third-party marketers.
Limitations on cross-marketing bank and insurance products (as well as securities).
Issues relating to possible consumer confusion (e.g., disclosures, physical setting and separation, prohibitions against the sale of insurance by bankers who take deposits or make loans, etc.).
Restrictions on compensation arrangements.
The agent associations are outstanding propagandists. But the contradiction between their rhetoric and actions is reminiscent of comedian Joe E. Brown's routine satirizing a power-hungry, land-grabbing dictator who claimed he was interested only in peace.
Brown, imitating the little dictator with his hair slicked down to one side and a finger stuck under his nose, would grunt: "I do not vant var, I vant only peace-a piece of Poland, a piece of Czechoslovakia, a piece of Denmark."
Similarly, agent associations appear before various congress members, the financial press, bankers, and insurers, cooing that the war between agents and banks is over. In fact, they may be right. Their claims have so disarmed trusting bankers and insurers that the latter have left the battlefield, thinking they have won and not bothering to look back to discover that the territory bankers and insurers thought they had gained is being reclaimed by a smiling enemy.
The agent associations "do not vant var." They "vant only a piece of Rhode Island, a piece of New Mexico, of Illinois, Pennsylvania ... ." They insist disingenuously that the kind of terms under which they welcome affiliations among banking, insurance, and securities firms "would not encumber the banks with anything the agents are not under." Then they introduce legislation in the states that makes it impossible for banks to provide convenient, competitive, efficient, effective, and professional insurance services to banking customers. Like a sedative, agent rhetoric has lulled many bank and insurance company executives to sleep.
The somnolence is dangerous. Dreaming all is well, insurance company and banking trade associations carry on talks, while in the states severe and possibly irreparable damage is being done to both nonbank insurance operations and bank insurance powers.
Fortunately, a few bankers, insurers, and securities firms are still at the barricades in numerous states, fighting the battles of an ongoing war that never ended. These committed veterans are working with the Financial Institutions Insurance Association and state bank trade associations to ward off the continuous assaults on free markets and bank insurance powers. Insurers should join with those associations that are doing the difficult and expensive work of battling agent association proposals state-by-state.
When it comes to evaluating agent associations' rhetoric by way of their deeds, there's too much trusting of their words and not enough verifying of their actions. Bankers and insurers had better wake up before it's too late.
