When it comes to banks entering the insurance business, Edward Utley, vice chairman of giant Geico Corp., speaks with surprising bravado: "As far as I'm concerned, bring on the banks. The more the merrier."

In fact, many insurance executives express the same attitude, even as the banking industry attempts to move onto insurance industry turf.

Take Hartford, Conn.-based Shawmut National Corp. Shawmut already sells insurance and annuities in Massachusetts through an agency in the small town of Hadley. Now it wants to expand into the insurance industry's backyard: neighboring Connecticut.

Agency Acquired Last Year

Shawmut bought an insurance agency there is November 1993, even though Connecticut forbids commercial banks to sell insurance.

"The long-term goal for us is not only to continue to sell investment-type insurance products [like annuities], but to sell a full array of insurance products," said Shawmut president and chief operating officer Gunnar Overstrom, who oversees the bank's insurance operations and is leading the charge into Connecticut.

His menu of new products includes life insurance, property and casualty insurance, and automobile insurance.

Sound like a bank with a mission to capture a lot of insurance business? It should. A full 42% of life insurance CEOs expect banks to be their biggest competitors over the next five years, according to a Towers Perrin study.

Taking It in Stride

But in Hartford, the nation's insurance capital, insurance companies are taking Shawmut's move in stride. Mr. Overstrom says insurance companies see banks as a better distribution system than their own agents.

Insurance companies are also calm because they doubt banks can be successful at their game, observers says.

While insurance agents have been up in arms about banks selling insurance, the chief concern for insurance companies has been that banks might get get into their business: underwriting. But Mr. Overstrom says Shawmut has no plans to do so, and insurance industry advocates say they don't see federal or state lawmakers giving banks underwriting power in the near future.

"Banks haven't done a perfect job in managing their own affairs," said Gene Grabowski, a spokesman for the American Council of Life Insurance, a Washington-based trade association.

On Good Terms

And, in the case of what Shawmut has planned, the insurance industry can't lose, according to insurance company spokesmen and industry observers.

Shawmut and insurance companies already have a good rapport. Shawmut provides cash management, custody, and lending services to more insurance companies than any other bank in New England. And Shawmut ranks fifth nationwide among banks serving insurers.

Insurance companies say they will make money on Shawmut's foray into their business because the bank will act as a distributor for their policies.

Mr. Overstrom pointed out that Hartford-based Travelers Insurance Cos. already uses Shawmut to sell its products.

"A lot of agent-dependent insurance companies have recognized there are alternatives," Mr. Overstrom said.

Legal Roadblocks

Travelers spokesman Keith Anderson confirmed that the company is using Shawmut to sell property and casualty insurance. Even though independent insurance agents in Connecticut are fuming about Shawmut's move, Mr. Anderson was confident that the bank would not become Travelers' exclusive distributor.

For one thing, Shawmut has to make its way through the courts before it can expand its insurance business. And it risks having to sell its recently acquired Connecticut insurance operation if the case goes against the bank.

Shawmut originally acquired Insurance Associates of New Haven, based in the state's third-largest city. The bank moved the agency to Chester, a town with about 3,390 residents, to comply with a federal law that allows banks to sell insurance if the bank or one of its subsidiaries is located in a town with less than 5,000 residents.

Mr. Overstrom argued that by moving the agency to Chester, the bank is abiding by the federal law that he claims preempts the Connecticut prohibition.

Limited Operation

Shawmut and Connecticut insurance commissioner Robert Googins have asked a Federal court to decide. Mr. Googins is allowing Shawmut to run its insurance operation on a limited basis. The agency has two employees selling life, property and casualty, and automobile insurance.

The decision's impact will reverberate throughout the state and the country. If Judge Jose Cabranes, who recently made the short list as a U.S. Supreme Court nominee, rules in favor of Shawmut, then federally chartered banks across the country will be able use the case as a precendent in their own fight to distribute insurance products.

If Judge Cabranes rules against Shawmut, independent insurance agents will throw a party and state-chartered banks will remain on the same playing field as federally regulated bank holding companies like Shawmut -- that is, with no right to sell insurance.

But Mr. Overstrom intends to go to the Supreme Court if Shawmut loses. Across the country, cases like this one are slowly moving up the court system and could eventually be the basis for courts and legislators to decide how much consolidation will go on between insurance companies and banks.

So far, it is unclear whether Shawmut will win. In December 1993, a federal court ruled against a bank in a similar case. Barnett Banks Inc. of Jacksonville, Fla., bought an insurance agency in a small town in Florida last year.

When that state's insurance commissioner said the bank was violating state law, the bank pointed to section 92 of the National Bank Act, which allows banks to sell insurance at banks or subsidiaries located in a town with less than 5,000 residents.

A judge in U.S. district court in Jacksonville ruled that section 92, enacted in 1916, was meant to provide insurance to those living in rural areas that did not have access to insurance, according to Mr. Grabowski of the American Council of Life Insurance.

Wording Found Ambiguous

However, all hope is not lost. Last year, in another case, the Supreme Court ruled that the intent of section 92 is ambiguous and does not concretely state that a bank in a small town couldn't sell insurance nationally.

Mr. Overstrom, for one, is confident about the case. He says consolidation of the financial services industry is inevitable and believes that Shawmut will be successful at selling insurance.

The Shawmut president said he envisions a future where customers visit their local bank branches for one-stop financial planning. They come for a loan, for instance, and then the bank can sell them homeowner's insurance, life insurance, annuities, and mutual funds.

Mr. Overstrom also said Shawmut can deliver a cheaper product than most insurance companies. To mix insurance into the bank's product base adds only marginal costs, he points out.

Track Record Questioned

Others are not so optimistic. They say the banking industry has a habit of entering nontraditional banking businesses and failing to perform well. "They have been particularly unsuccessful in mutual funds," said Lewis Mandel, a finance professor and associate dean at the University of Connecticut's School of Business Administration.

Mr. Mandel said that even if the courts rule in favor of Shawmut, it would be a "hollow victory" because he is skeptical about the bank's success.

For one thing, he says, the people who want life insurance are the very people who don't come into branches, because they are young couples accustomed to ATM machines and telephone service.

Shawmut needs to invest more in customer-based telephone systems so customers can call up and ask about insurance, the way other banks offer mutual funds and other products, Mr. Mandel said.

Cheap Labor

Also, Mr. Mandel predicts that banks won't hire the most qualified agents. "When banks enter the brokerage business they tend to hire minimum-wage brokers," he said.

Geico's Mr. Utley disagrees that Shawmut's distribution system is cheaper than Geico's. He said the very fact that his company does not have sales agents is the reason Shawmut won't beat Geico in the property and casualty or the automobile insurance business.

To get a policy from Geico, customers call a toll-free telephone number. Geico pays no rent on agencies or other expenses related to agents except salaries for the company's customer service representatives.

"I don't see how banks can sell the product without adding considerable expense, which makes their product less competitive," he said.

But Mr. Overstrom still believes he will have the last laugh. He said that while insurance agents are fighting consolidation of the industries, "insurance companies have recognized our competitive advantage."

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