In Focus: Lobbying Effort SeenBack firing on Insurers If OCC Preempts

Lobbying against bank insurance sales could backfire.

That is the warning from Craig A. Berrington, senior vice president and general counsel of the American Insurance Association, which represents more than 300 property and casualty insurance companies.

Successful lobbying would result in state laws that restrict bank insurance sales, Mr. Berrington said at a National Association of Insurance Commissioners hearing last week. But it would also prompt the Office of the Comptroller of the Currency to intervene and preempt any new laws, he warned.

The ultimate result: State regulators' oversight would be pared significantly, and the OCC would become a de facto federal insurance supervisor.

"This would be the first time in history that the true locus of insurance regulation has shifted from the states to federal regulators," Mr. Berrington said. "That to us would be an extraordinarily unfortunate precedent."

Rhode Island and New Mexico have each enacted laws based on model legislation being shopped by the Independent Insurance Agents of America. The OCC would preempt the Rhode Island law if it decides that the statute significantly interferes with national banks' ability to sell insurance.

"The stated purpose of that law is to protect consumers from coercive banking activities, but the specific language makes it more difficult for banks to sell insurance than for others to do so," Mr. Berrington warned.

The NAIC held the hearing last Tuesday to hash out how to define "functional regulation." Their ultimate goal is to settle upon a way for state and federal regulators to split up supervision of bank insurance sales.

Most insurance groups advocated giving state regulators sole authority for protecting consumers from unscrupulous insurance sales practices in banks. William B. Greenwood, vice president of the Independent Insurance Agents' executive committee, said that state insurance regulators have decades of experience enforcing consumer protection rules. "No federal regulator has expertise in this arena," Mr. Greenwood said.

States must "send a strong message to financial institutions that they must not leverage their lending power with their insurance sales activities," Mr. Greenwood added. But bankers questioned why insurance industry officials are worried.

"Twenty-nine states have allowed bank insurance sales for many years without the need for special treatment and restrictions," said E. Kenneth Reynolds, executive director of the Association of Banks-In-Insurance.

Indeed, Monica M. Barbour, vice president of First Chicago NBD Corp., said her institution has sold property and casualty insurance in Indiana for nearly a century without problems.

"There is no evidence throughout the bank's long history of any consumer or regulatory complaints relating to the perceived conflicts," Ms. Barbour said in testimony submitted to the commissioners.

Most bankers testified that they are willing to let states supervise their insurance activities provided they are treated the same as nonbank agents.

"If state insurance law and regulation is fair and evenly enforced, there will be no need for further federal preemption," Peoples Bancorp general counsel Charles R. Hunsaker said.

However, others said they wanted to keep insurance regulators out of their institutions as much as possible.

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