New Hampshire is weighing rules that could make it one of the toughest places in the country for banks to sell insurance.

The proposed rules, made public in September by the New Hampshire insurance commissioner, would require bank insurance sales areas to be outside bank offices. Few other states make such a requirement.

"The proposed rule would adopt arguably the most restrictive bank insurance sales provisions in the nation," wrote Richard D. Starr, chairman of the Financial Institutions Insurance Association, in a letter to New Hampshire's insurance commissioner.

The rules are to take effect once a final version is released by the commissioner, which is expected to happen within two months. Drafting of the rules was mandated in a banks in insurance bill passed by the state's General Court in June 1997.

The law, which offers general guidance to the commissioner, says that insurance sales sites should be distinct from retail banking areas to the extent practical. It also says bank agents should tell customers that insurance purchases are not tied to loan approvals.

But the Financial Institutions Insurance Association argued in letters and public comments that the commissioner's proposal went too far and that it conflicts with bank insurance powers established by Supreme Court decisions and with guidelines issued in 1996 by the Office of the Comptroller of the Currency.

After these criticisms, the New Hampshire Insurance Department is revising its proposal, said Senior Examiner Donald L. Belanger.

Mr. Belanger refused to explain how the agency might specifically amend its proposal. He said simply that the insurance department had decided it will strive to make its proposed rules comply with the OCC guidelines because "there's no sense in fighting that battle."

"The OCC has spoken quite clearly on what the affiliated and nonaffiliated agents are allowed to do," he said.

In a letter to the FIIA from a law firm representing the New Hampshire Insurance Department, Daniel E. Lyford wrote that he believes the agency will relax affiliation restrictions.

It may also drop a directive that all insurance sales be conducted from towns of 5,000 or fewer residents and relax its requirement for separate sales areas.

Mr. Belanger would not discuss specific changes in the proposal. However, he said the final draft of the rules would seek to balance the OCC guidelines and state statutory requirements.

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