Despite predictions of bruising battles, bankers and insurance agents are working together in many states to enact laws governing bank insurance sales.
The West Virginia and Arkansas legislatures passed bills last week to allow insurance sales by banks operating within their borders. Maine and New Mexico are likely to enact similar legislation in April. Florida, Indiana, Massachusetts, New Hampshire, New York, and Texas are expected to act this year.
Following the Supreme Court's ruling giving national banks the right to sell insurance, states are eager to arm their own banks and spell out laws governing bank insurance sales.
Thomas A. Winner, president of the West Virginia Bankers Association, said his group has been bargaining with the insurance industry for roughly a year to get a proposal both sides would accept. "The bill has a lot of give and take, but it passed with no problem," he said.
Though bills to give banks insurance powers have been introduced in 35 states, enactment is likely only where deals have been worked out between the banking industry and rival insurance groups, according to industry experts.
"Neither side is claiming a big victory, but both sides are satisfied," said John W. Klack, executive vice president at the Maine Insurance Agents Association. "We knew the Legislature wasn't going to say national banks can sell insurance, and state banks can't."
The West Virginia law and others likely to pass soon give banks more leeway than a restrictive measure enacted in Rhode Island last year. Bankers complained Rhode Island's law, based on model legislation drafted by the Independent Insurance Agents of America, hinders them from entering the business by banning insurance sales to any customer who has a loan application pending and prohibiting sales by all loan officers and tellers.
The industry has asked the Office of the Comptroller of the Currency to preempt many of that law's provisions.
Because states are the primary regulators of insurance sales, even for national banks, lawmakers must tackle such thorny issues as consumer protection laws and safeguards preventing insurance supervisors from discriminating against banks.
West Virginia's law would prohibit loan officers from selling insurance. Small banks-those with three or fewer loan officers -would be exempt from that restriction. A small bank officer, however, would be prohibited from making a loan and selling insurance to the same customer.
But even that restriction has an exemption: Banks with only one lending officer can get a waiver from the West Virginia bank commissioner.
Banks also must confine insurance sales to a part of the branch that is "readily distinguishable" from areas where lending and deposit-taking is conducted. Small banks also are exempt from this restriction as long as they try to "minimize customer confusion."
The West Virginia law also:
Forbids tellers and other unlicensed employees from receiving a fee for referring customers to a bank's insurance agent.
Prohibits the tying of loan approval to the purchase of insurance.
Requires banks to disclose that insurance products are not federally insured and that choosing another insurance provider will not affect credit decisions.
Bans insurance solicitations to customers with pending loan applications.
Bars institutions from using personal information from borrowers to solicit insurance without customer permission.
The agreement in West Virginia heads off the insurance disputes that have raged since the Rhode Island law was enacted last August.
Dan G. Bailey, executive director of the Arkansas Bankers Association, said his group dodged a similar battle. "We were able to work through the provisions in the bill and avoided a major fight on the General Assembly floor," he said.
Even in Rhode Island a truce is possible. The OCC has delayed its decision on the Rhode Island law to see how strict the insurance commissioner's regulations will be.
David C. Turner, assistant vice president of state government affairs for the Independent Insurance Agents of America, credited the tough Rhode Island law for bringing bankers to the negotiating table.
"The Rhode Island law sent a wake-up call," he said. "The banking community decided it better be involved in the process."
But the battles continue in many states. In Mississippi, all banks remain barred from selling insurance pending a ruling by the U.S. Supreme Court on the state insurance commissioner's refusal to let banks into the business.
In New Jersey, bankers are trying to fend off an insurance industry bill that would bar insurance sales for 30 days following a loan closing and prohibit use of most customer loan data for insurance solicitation.
In Pennsylvania, industry groups stopped talking in January following a suit filed by the Independent Insurance Agents of Pennsylvania challenging the bank commissioner's ruling allowing state banks to sell insurance.
James R. Biery, executive vice president of the Pennsylvania Bankers Association, summed up his frustration: "As long as the legislation contains those kinds of things, there's nothing to talk about."