The insurance industry is singing a new song, but bankers may not like the tune.

Insurance agents recently have sounded almost conciliatory, after spending most of last year demanding that Congress roll back court decisions permitting banks to sell insurance in every state.

"The days when agent trade associations lined up to deny banks access to insurance markets are long over," Michael P. Grace, president of the National Association of Professional Insurance Agents, told lawmakers last week.

But make no mistake, the insurance industry is still trying to defend its turf-by making states the ultimate authority over banks entering their business.

At a House Banking Committee hearing May 14, insurance industry officials demanded that financial services reform legislation eliminate the comptroller of the currency's ability to overrule state insurance laws.

Bankers claim this new position is still a threat and predict that states will pass laws that make it harder for banks to sell insurance.

Not so, say insurance lobbyists.

"Our position supporting state regulation is not a veiled effort to keep banks out," Mr. Grace said.

After vainly lobbying Congress last year to throttle the comptroller's ability to grant new powers to national banks, the insurance industry appears to accept that national banks will be able to sell insurance across the country.

Large insurance companies are actually welcoming banks into the business because they want a new outlet for their products, industry executives said.

Gary Hughes, chief counsel of the American Council of Life Insurance, recently told state lawmakers that it is a losing battle to try and preserve statutes prohibiting banks from affiliating with insurance companies.

"I think you'll find very little support," Mr. Hughes told the National Conference of State Legislatures on May 9.

Still, he endorsed "functional regulation," which leaves all insurance supervision to state officials, even for products sold by banks.

Brent Larsen, director of government affairs for Grinnell Mutual Reinsurance Co., said state laws governing safety and soundness and consumer safeguards are particularly important for banks.

"The comptroller's authority to determine which insurance activities are permissible for banks and to override state regulation of insurance must be curtailed," he told the House Banking Committee last week.

Insurance executives have been especially critical of the comptroller's ongoing review of a Rhode Island law governing bank insurance sales. The law prevents bank loan officers from selling insurance and prohibits banks from offering insurance products to a customer who has a loan pending.

If the Comptroller's Office decides the law discriminates against banks, it may tell national banks they do not have to comply.

"It appears the OCC is prepared to impose its own views on how best to legislate," complained Rhode Island Sen. William V. Irons, who also is an insurance agent. "This is clearly beyond the OCC's legitimate role as banking regulator."

Mr. Grace, an agent with Wright & Percy Insurance in Baton Rouge, La., said the comptroller has overstepped the March 1996 Supreme Court ruling that gave banks authority to sell insurance from small towns.

He noted that the court said states may not "significantly interfere" with bank insurance sales.

"The OCC seems to believe ... states cannot treat banks differently from nonbanks," he said. "But that standard can be found nowhere" in the court's ruling.

Mr. Grace said states must account for "legitimate differences" between banks and other sellers of insurance. In fact, the Comptroller's Office itself recognized that banks need special rules for selling insurance products and annuities, he said. For instance, the agency requires that banks tell customers that those products are not federally insured and prohibits tying of banking and insurance products.

Laws for bank insurance sales also have been passed this year in Michigan, West Virginia, Arkansas, New Mexico, and Indiana. Similar measures are also pending in roughly 20 other states.

"In the meantime, the OCC is meeting with state insurance regulators, intimating that it is prepared to preempt any laws or regulations that it views as going too far," said Mr. Irons.

Mr. Irons, who sponsored the Rhode Island law, said banks have nothing to fear from state regulation.

"I can assure you that desire to penalize or hamper the banks played no part in the legislative process," he said. "None of the provisions preclude national banks from engaging in the business of insurance in any way."

Mr. Irons said insurance groups have no incentive to interfere with banks that want to get into the business.

Many insurance agents are already affiliated with banks, he said, and trade associations are launching education programs to help others launch strategic alliances with depository institutions.

Representatives from large insurance companies also called for states to be the dominant regulator of banks insurance sales.

"Federal bank regulatory agencies should not attempt to expand their authority over underwriting or sale of insurance," said Craig A. Berrington, general counsel for the American Insurance Association.

In recent weeks, however, Mr. Berrington and other company representatives have said that some states are trying to go too far.

"The Rhode Island law does establish a more difficult regime for banks selling insurance," Mr. Berrington told the NCSL. "We want no part of that."

"There's no wonder banks are skeptical, if not hostile, to state regulation," USAA deputy general counsel Bruce Clements told the National Association of Insurance Commissioners on April 29. "States have a long way to go in convincing banks the playing field will be level."

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