Despite several recent victories, the banking industry's battle to sell insurance is far from over.

Legal experts expect insurance commissioners and agents to use state laws to block bank entry into the market. They also said the insurance industry may challenge a recent ruling by the Office of the Comptroller of the Currency giving banks wide latitude to sell insurance from small-town branches.

"It is premature to declare victory," said Kathleen Collins, Washington counsel to the Financial Institutions Insurance Association. "There are still efforts to make the sale of insurance products very difficult for banks."

Added Richard M. Whiting, general counsel at the Bankers Roundtable: "The insurance agents are fighting for their lives and they will fight in whatever forum is available."

Although banks have yet to win the final battle, the industry has earned several significant victories in its campaign to offer insurance.

The most recent occurred Nov. 4, when the Comptroller's Office ruled that national banks, operating from small town branches, may sell insurance to customers statewide, including in branches of the bank.

The OCC also said banks may use branch employees to refer customers to the insurance agency, mail sales brochures statewide, undertake telemarketing campaigns, and outsource back-office activities.

The regulator did attach two restrictions: Banks must process applications and pay commissions from the offices in towns with fewer than 5,000 residents. The guidance was contained in a letter to First Union National Bank.

"This opens up the market significantly for national banks to open a large insurance operation," said David Roderer, a partner at the Washington law firm of Winston & Strawn.

Bankers garnered an earlier victory in October, when the Comptroller's Office issued a series of best-practices guidelines for national bank insurance sales. The agency said it may preempt state laws that place "special burdens" on banks to sell insurance. The OCC, however, urged banks to follow state licensing, continuing education, and unfair trade practices laws.

The guidelines appeared to satisfy both bankers and insurance commissioners. Bankers were pleased with the OCC's pledge to overturn discriminatory state laws while the commissioners welcomed the agency's admonition to follow state licensing requirements.

"The advisory letter looks rather modest, so there is no reason to complain," Mr. Roderer said.

These administrative victories come on the heels of two Supreme Court triumphs and a significant federal appeals court win.

The Supreme Court ruled in March in the so-called Barnett case that states may not prevent national banks from selling insurance in small towns. The justices ruled in 1995 that states may not prevent national banks from selling annuities.

And the U.S. Court of Appeals in Chicago held that national banks do not have to limit insurance sales to residents of a small town.

In the wake of all these victories, a consensus is emerging: Banks must apply to the state to be licensed and then may exercise all the powers available to any other insurance agency, provided the business is based in a small town.

Maryland is among several states to adopt this middle-of-the-road approach. In an Oct. 31 letter, the state banking and insurance commissioners agreed that they must allow national banks to sell insurance. But they issued requirements that bankers and their agents receive licenses. They also exempted tellers form the licensing requirement, provided they do not receive any referral fees.

The rules also stress that consumers may file complaints against banks.

"You will see the state regulators and the insurance regulators working very closely together to work up guidelines that protect consumers while allowing banks to offer these products," predicted Ellen Lamb, vice president at the Conference of State Bank Supervisors.

Despite the good news for banks, bankers doubt that every state will be as forthcoming as Maryland. They point to Rhode Island, which adopted several significant restrictions. For example, banks must physically separate their banking and insurance operations there, cannot offer discounts to consumers who use bank as well as insurance products, and cannot use data on bank customers to sell insurance.

"These are enough to destroy any competitive edge a bank has going in," Ms. Collins said.

Bankers also might revolt if the OCC required banks to give insurance regulators access to their books. A federal law appears to prevent state regulators from examining national banks, but the OCC's guidelines appear to carve out an exception.

"There is liable yet to be some substantial discomfort over the subject," Mr. Roderer predicted.

Still, the insurance agents are expected to raise most of the obstacles. "At the moment it appears the comptroller is happy, the insurance commissioners are happy, the banks don't have a reason to complain, and the insurance agents are still howling mad," Mr. Roderer said.

Insurance agents are expected to try to block the OCC's First Union letter. "We have always thought of litigation as one of our options and going to Congress as another option," said Ann Kappler, a partner at Jenner & Block who represents several insurance trade groups.

Ms. Kappler said the letter contradicts the intent of the law, which was to give small-town banks an opportunity to compete against larger, city-based institutions. She said the insurance industry had not ruled out any option.

Banking industry officials said they doubt the agents will sue. The courts have consistently supported the OCC's authority to let banks sell insurance, they said, and any fight would cost lots of money and have little prospect of succeeding.

That doesn't mean insurance litigation is over. Lawyers expect a series of battles in more than a dozen states over how far insurance commissioners may go to regulate national banks. This could take years to resolve and cost millions of dollars.

The fight also would affect at least 13 states that have banned their banks from selling insurance. These states also have so-called wild- card statutes, which give state-chartered banks the same powers as national banks; because the two laws conflict, the state legislatures must decide which will prevail.

"This is a golden opportunity for bankers to approach their state legislatures and seek broader powers," Ms. Lamb said.

The other option is for Congress to intervene, a possibility both sides said they welcome. "Until there is a national policy established by Congress or the insurance industry decides to on a broad basis join in a cooperative basis with the banking industry, we will continue to have these battles," Mr. Whiting said.

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