Insurance Agents' Declaration of Peace Is a Phony

By White, Michael D. | American Banker, February 25, 1997 | Go to article overview

Insurance Agents' Declaration of Peace Is a Phony


White, Michael D., American Banker


While most banks, insurance companies, and securities firms sleep, dreaming of financial modernization and affiliations and sighing comfortably over the insurance agent associations' proclaimed change of heart that "the old war between the insurance and banking industries is over," agent associations have been awake, busily waging war in half the states' capitals.

Since the Supreme Court's Barnett decision, agent associations have been on the alert, lobbying statehouses and insurance regulators to adopt legislation and regulations that would hamper banks in selling insurance. In Rhode Island the legislature passed the first new restrictive bank insurance law. Similar proposals in either legislative or regulatory form have now been introduced in at least 23 states.

Postured as consumer protection, these proposals are designed to establish pre-Barnett standards that maintain the agent associations' monopoly shelf life. When passed into law or finalized as regulation, each would require banks to file a separate request for an OCC preemptio review-like that made by the Financial Institutions Insurance Associatio in Rhode Island.

That requirement and court challenges will stymie bank entry into the insurance market. When time comes to seriously negotiate specific financial modernization and affiliations provisions at the federal level, bankers and insurers will discover they have to lobby Congress for federal preemption of these new onerous state laws and regulations, a task to be dreaded.

While pushing similarly restrictive provisions at the federal level, agent associations will then be in a position to demand "trade-offs" in the form of further restrictions on "incidental powers" and OCC interpretations and rule promulgations.

Agent associations will demand revisions in section 92 language, passed by a previous Congress, that authorized the comptroller of the currency to establish the regulations by which national banks conduct insurance agency activities.

They will demand "states' rights" and state supremacy in passing rules they claim are only "consumer protections" but are really nothing more than anti-competitive measures designed to protect their oligopolistic market share.

In the end, there may be no new federal law enabling modernization and affiliations because bankers and insurance company executives were asleep at the switch and allowed the agent associations to strip them, state by state, of their free-market insurance victories in the Barnett and Valic cases.

The situation is critical in many states, largely because financial institutions and insurance companies favorably disposed to the bank market have not made their voices heard in a unified and forceful fashion.

Negative proposals have been introduced or already passed in many states, including Connecticut, Florida, Georgia, Illinois, Louisiana, Maine, and Minnesota These state-based legislative and regulatory proposals pose major threats to bank and nonbank insurance marketing. They have serious defects in their: Definition of "financial institution. …

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Insurance Agents' Declaration of Peace Is a Phony
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