Insurance and Banking Industries Square Off Over a Market Dispute

The groundwork was laid quietly at a recent Dallas meeting for the insurance industry to battle the banking industry over a vital territorial dispute.

At issue is the attempt by banks, especially the large ones, to gain a foothold in the lucrative insurance market as they seek to expand their operations.

If they succeed, all banks will be able to sell insurance to their customers. Sympathetic insurance regulators in various states see this as providing healthy competition.

Industry Is Worried

The insurance industry is deeply worried about this intrusion and doesn’t want to yield an inch.

The meeting in Dallas was arranged by the National Assn. of Professional Insurance Agents, which has its headquarters in Alexandria, Va. The purpose was to draw up plans for a public campaign to explain the industry’s position throughout the country.

The clash between the two cornerstones of the country’s financial sector promises to be protracted. Both sides realize public sympathy for the issue will be lacking. Both stress vital public concerns are involved. Both are mounting major lobbying efforts to win state lawmakers to their points of view.

The possibility of an integration of banking and insurance has increased in the current climate of deregulation. The insurance industry historically has remained outside the purview of federal regulators.

Nurtured on that independence and years of unrestricted prosperity, the industry believes its market sovereignty is now threatened by the banks.

The concern is heightened by recent losses in the liability insurance sector and the industry’s failure to win major premium hikes in several states. Industry officials say the situation is so bad commercial insurance premiums next year may have to be raised from a minimum of 25% to more than double the current rates to make any kind of profit. Competition within the industry also has cut into profits.

Banks to Take Control

PIA has charged if banks are allowed to enter the insurance business, consumers would lose their freedom of choice and the country’s business “would suffer at the hands of a small but powerful coterie of New York-based banking interests.”

The implication is that big banks will take control of the insurance market and drive the neighborhood insurance agent out of business.

Patricia Borowksi, PIA’s vice president for government, told UPI in an interview the banks would be able to subtly and overtly coerce consumers to buy their insurance as an implied condition of a loan. She said the banks could use their enormous financial strength and confidential customer financial files to mass-market cut-rate insurance throughout the nation.

“It is very much a public issue,” she said. “We have no objection to a bank or a savings and loan association requiring an applicant for a loan to have an owners’ or property insurance policy. But an institution that is allowed to put that into a loan agreement should not be the same institution that will control the insurance.”

Speaking for the banking industry, John Shivers, president of the Independent Bankers Assn. of Texas, told UPI the entire issue is one of securing equal rights for the banks.

“That’s absurd. I don’t know of any case where banks ever coerced anyone into buying insurance from them,” said Shivers. “In Texas, banks in towns with population of 5,000 or less have been allowed to sell insurance for years. In the atmosphere of deregulation, insurance is a natural product to go along with banking services.

‘Don’t Want Competition’

“They (the insurance industry) don’t want competition. They have been free of federal regulation while banks are among the most heavily regulated institutions . . . Also, if Sears and savings and loan associations can have penetration in the market, then banks should have the same right. Insurance is just another product line.”

The “just another product line” provides more than $21 billion in insurance protection in the country. PIA members average about $900,000 in policy premiums annually.

PIA officials said if banking and insurance are integrated, tens of thousands of independent insurance agents would close their doors because they could not compete effectively against the banks.

“That’s a smoke screen,” said Shivers. “We only tell the customer insurance is available with us if they want it and what it will cost. All insurance rates are set by state insurance commissions. The rates are the same whether I sell it to you or an agent down the street does. All we want is that the same rule apply for everyone.”

The PIA says there are dangers involved in integrating banks and insurance. “If a bank fails, the bank’s affiliated businesses could sink with it.”