Bankers' hopes of cross-selling banking and insurance products under the financial reform law could hang in the balance, some insurance experts say, as state insurance commissioners begin to debate privacy rules next week in Kansas City, Mo.

Regulation in the insurance industry is more fragmented than in the banking industry. That means banking companies could win lenient rules from their regulators for sharing information about banking customers and still face state rules that block cross-selling to customers of insurance companies.

"If you're performing insurance functions in a state, it doesn't matter if you are a bank or an insurance company - you have to follow the state's rules," said Rey Becker, a vice president in the property/casualty area for the Alliance of American Insurers, which is based Downers Grove, Ill. "And if the insurance industry can't share its clients to help cross-sell products, it takes away a key purpose of creating these alliances."

The Gramm-Leach-Bliley Act lowers barriers between the industries, but "leaves room for states to add greater consumer protections," Mr. Becker said. "That's an invitation for states to jump in. And that's an eye-opening experience for bankers, who in general have not had to deal with states as much as insurance companies have."

At next week's session, the National Association of Insurance Commissioners' privacy group is due to start drafting interim, model regulations on sharing information about customers. The group hopes to have its proposals ready for debate at the association's summer convention June 10-14 in Orlando.

Among the chief issues the group will consider, sources said, is the implementation date for the privacy rules required under Gramm-Leach-Bliley. Bankers have won a delay from their regulators until July 1, 2001, but the insurance business will still be subject to the original Nov. 13 deadline unless state insurance commissioners follow suit.

Wells Fargo & Co. of San Francisco is taking a wait-and-see approach.

"Ideally a company would like to have one policy for all the states," said Teresa Morrow, a spokeswoman in Minneapolis. "But we don't know how it will shake out. We may have to have separate individuals monitor each state and have separate disclosures to meet the particular needs of a specific state."

Ms. Morrow said Wells Fargo already has some experience in handling differences in state rules because it already sells insurance lines in multiple states.

Joyce Kraeger, a staff attorney for the Alliance of American Insurers, said many banks may be worse prepared than insurance companies are to deal with 50 standards.

"It could be a disadvantage, simply because insurance companies are historically subjected to having to deal with filing rates in every state and playing by different rules in every state," Ms. Kraeger said. "But really, the entire financial services industry is at a disadvantage if every state passes different privacy laws. That will slow down production for everyone."

The state insurance commissioners group is discussing a system under which insurance companies could use a single state charter to operate nationally. The goal would be to standardize insurance rules as much as possible.

Bankers have urged the group to support laws that create uniformity, but insurance industry veterans say the group is unlikely to comply. "Insurance companies like to play regulatory agencies against each other, trying to get the least regulation possible," said Elizabeth R. Costle, the Vermont insurance commissioner.

And even if the group adopted a single-charter plan, state legislatures could enact tougher requirements for insurers headquartered in their states.

The Gramm-Leach-Bliley law would require holding companies to give customers a chance to prevent information from being shared outside the holding company. That would make joint marketing efforts more difficult, but would not affect cross-marketing of products within a holding company.

Washington and California are flirting with tougher regulations, Mr. Becker said.

In Washington, a bill that might appear on the 2001 ballot would require holding companies to get customers' approval to share information among affiliates, making it more difficult for members of a holding company to cross-market products.

California's Senate Judiciary Committee is discussing Senate Bill 1372, governing consumer privacy. That bill proposes an opt-out form that would let customers block sharing of information within the holding company.

Other privacy bills have failed to pass this year in Connecticut and Minnesota.

"Most of the other states are taking a wait-and-see attitude," Mr. Becker said. The privacy regulations under Gramm-Leach-Bliley have not taken effect, "so states are not making hasty moves."

Dean Anason contributed to this report.

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