Insurers Vow to Fight Plan to Let Banks on Their Turf : Legislation: In the 500,000-strong army of independent agents, a House bill permitting common ownership of insurance and banking firms has a formidable foe.

A tense silence hung over the ornate Treasury Department conference room. Insurance lobbyists had come to blast the Administration’s plan to open financial services to the fresh air of competition--in particular by letting banks move into the insurance business.

Treasury officials had finished explaining their plan. The president of the Independent Insurance Agents of America broke the ensuing hush.

“We won’t buy it! We will continue to oppose you!” shouted Jack Payan, pounding on the conference room table. He pulled a coin out of his pocket and proclaimed, “We will fight you to our last dime.”

That meeting was held in 1983 under a Republican President, Ronald Reagan. Now, there is a Democrat in the White House, but, like Reagan, President Clinton wants to give the banks expanded powers. And the insurance agents once again are vowing to fight to their last dime.

With agents politically active in every congressional district who are not shy about making contributions to their friends’ election campaigns, the 500,000-strong army of independent agents has lost none of its clout.

This year, it is training its big guns on a bill approved by the House Banking Committee that, by permitting common ownership of insurance and banking firms, would tear down some of the last major barriers to the expansion of the nation’s big banking companies.

“They are very good at not taking no for an answer,” said Paul A. Equale, senior vice president of government affairs for the Independent Insurance Agents of America, whose 280,000 members make it the industry’s biggest trade group.

“We would rather have no bill than a bad bill,” Equale declared. Thanks to the agents’ determined opposition, the bill is given little chance of enactment.

Equale described agents as “natural politicians” who join the Rotary, Kiwanis, Elks and other civic groups, who serve on the boards of local hospitals and become aldermen, city council members and mayors.

In fact, two former agents are influential members of Congress. Gerald B.H. Solomon (R-N.Y.) is chairman of the House Rules Committee, and Norman Y. Mineta (D-San Jose) is the ranking minority member of the House Transportation Committee.

The insurance industry--including company political action committees as well as agents and brokers--contributed $9.7 million during the 1994 congressional campaigns, more than any other segment of the financial services business, according to the Washington-based Center for Responsive Politics, a campaign finance watchdog group. Commercial banks ranked second, contributing $7.2 million.

The insurance agents are confident about defeating the House Banking Committee bill because they have important natural allies.

The impending stalemate between banks and insurance agents is welcomed by many Democrats in Congress who want to kill the bill because they believe it would weaken consumer protections and ease requirements that banks invest in their local communities.

“Let the giants fight each other . . . and stymie this bill,” Rep. Maxine Waters (D-Los Angeles), a member of the Banking Committee, said gleefully.

The bill, which would repeal some disclosure rules and eliminate a three-day “cooling-off period” to cancel mortgage refinancing, “wipes out key tools consumers need to bargain effectively with powerful financial institutions,” according to Michelle Meier, Consumers Union counsel for government affairs.

Another foe is the Independent Bankers Assn., whose members consist largely of community lenders.

They worry that the legislation would allow the Merrill Lynches of the world to swallow the regional brokerage firms, which would then be consumed by the Prudentials, forming banking, securities and insurance giants that would swallow up the remaining community bankers.

The community bankers “have made common cause with the agents,” said Ken Guenther, executive vice president of the IBA, “and we will stand shoulder to shoulder with them . . . to make sure the bill does not move forward.”

To beat the bill on the House floor, Guenther noted that “we only have to pick up 10 Republican votes. The agents and us working together can pick up 10 votes.”

The House is the key battleground in this session of Congress because no immediate action is expected in the Senate, where Banking Committee Chairman Alfonse M. D’Amato (R-N.Y.) is focusing on hearings into the Whitewater affair.

D’Amato has proposed legislation to remove all barriers that prevent one kind of financial services company from moving into other lines or work. Skeptics call this a ploy to help raise funds for the Republican Senatorial Campaign Committee, which D’Amato also heads, and insurance agents are confident that D’Amato’s bill is going nowhere.

Inevitably, every effort to pass major financial services legislation becomes a struggle between banks and insurers, said Ed Yingling, chief lobbyist for the American Bankers Assn. and a respectful foe of the powers of the agents. “It’s a fight that hangs over every banking bill.”

The banks say they must grow into new businesses to survive in an increasingly competitive world. Bankers have watched their market share erode as big businesses went to Wall Street, issuing commercial paper to raise cash, and small savers moved to money market funds.

“Our basic long-term concern is that we are locked in by laws to prevent us from adjusting to changing circumstances,” Yingling said. “Our market share is steadily shrinking.”

Over the past decade, a series of sympathetic comptrollers of the currency--the Treasury Department official who regulates national banks--has let the banks steadily expand their insurance activity. They may now, for example, sell annuities, the popular tax-deferred investment products pioneered by the insurance industry.

To the embattled agents, the comptroller is trying to overturn the tradition and law under which insurance is regulated by the 50 states--a position supported by the American Assn. of Retired Persons, the powerful 32-million member citizens lobby.

State insurance commissioners “have the expertise and are best situated to determine which insurance activities are to be permitted within their borders,” Martin Corry, director of federal affairs for AARP, said in a letter to House Banking Committee members.

The agents won an amendment that would restrict the comptroller’s administrative powers to expand bank activities. But their jubilation was overshadowed by the amendment allowing banks and insurance companies to buy each other.

Now, neither side is happy with the shape of the legislation. The proposed restrictions on the comptroller “continues to pose serious problems,” said Alfred M. Pollard, senior director for legislative affairs at the Bankers Roundtable, an organization of the 125 biggest banks. “Our members continue to have questions.”

Meanwhile, Pollard warned, Congress and all the actors in the financial services sector--notably banks, insurance companies and independent agents--face the danger of ultimately being bypassed by fast-moving computer technology.

“This fight should have been settled 10 or 15 years ago,” he said. “We are moving into an age where vendors can provide services electronically on-line. The vendors can be anyone. In the future, it may not matter if it is the bank or the insurance agent when you go to the computer and call up the application for a policy.”