A recent ruling by the Office of the Super-intend–ent of Fi-nan-cial Institutions that says banks can continue to promote insurance on their websites is likely to spur greater activity by banks to do just that, which does not please groups representing independent insurance agents.

“The banks have found a way to squeeze through holes [in the legislation],” says Dan Danyluk, CEO of the Toronto-based Insurance Brokers Association of Canada. In response to a complaint IBAC submitted to OSFI, the regulator recently ruled that a bank website does not constitute a branch and, therefore, the banks weren’t contravening the Bank Act, which states that they can’t promote or sell insurance products in their branches.

Bankers are naturally pleased with the ruling, and one bank is now contemplating launching Web-based marketing programs for its insurance arm. Brian Young, president and CEO in Vancouver of Canadian Direct Insurance Corp., a subsidiary of Edmonton-based Canadian Western Bank, says OSFI’s decision clears the way for promoting the insurance company on CWB’s website.

“Websites have always been a bit of a grey area — is that considered promotion or not?” says Young. “Now, with clarity [on this issue], it would allow us to highlight our insurance product on the bank’s website.”

However, OSFI should be doing everything it can to promote independent consultation for insurance purposes rather than doing “anything to nurture and pander to [the banks],” says Merlin Chouinard, president of the Mississauga, Ont.-based Independent Financial Brokers of Canada. The IFB has voiced its concerns on the issue in the past.

Although OSFI has not yet issued a formal ruling, it acknowledges that it has responded to IBAC’s complaint after months of back-and-forth correspondence.

“Our interpretation is that [banks promoting insurance on their websites] is not in contravention of the Bank Act, that in fact the definition of a ‘branch’ is not broad enough to include a bank’s website,” says Rod Giles, manager of communications and public affairs for OSFI in Ottawa. Giles has indicated that OSFI will soon issue a formal ruling.

The implications of OSFI’s ruling are worrisome for Canadians, Danyluk contends: “One would expect that the kind of rigour that goes into regulating a bank branch, and the kind of market conduct that you would expect, is something that you would also expect on the Internet.”

Banks have been promoting insurance through their websites for several years. Most of the big banks’ sites feature an insurance link on the home page that will take visitors to the website of the bank’s insurance subsidiary, where visitors can download forms and apply for insurance products.

“What OSFI has done is clearly reinforce the fact that banks are and have been operating entirely within the law,” says Maura Drew-Lytle, director of media relations and communications for the Toronto-based Canadian Bankers Association. “The rules here are very clear and have been in place for several years. And, of course, that’s good for consumers — they have the right to access information over the Internet that helps them make informed financial decisions.”

IBAC first wrote to OSFI in early 2008, complaining about what the insurance brokers felt were aggressive actions being taken by the banks that were either in contravention of the Bank Act or against its spirit, Danyluk says.

The Bank Act, which was last updated in 2007, prohibits banks from promoting or selling any insurance product other than credi-tor-type insurance at the branch level, although they can provide a consumer with general insurance information if the consumer expressly asks for it.

In IBAC’s complaint to OSFI, the association specifically took issue with: how some of the banks were distributing pamphlets on insurance; their opening of insurance branches next door to bank branches; and their promotion of insurance on their bank websites, which IBAC suggests should be considered legally equivalent to branches.

“You have all the activities that happen in a branch happening on a website,” Danyluk says. “The intent of Parliament [in the Bank Act] was to separate those operations from the sales and marketing of insurance products.”

OSFI ruled against IBAC on all three complaints. The brokers’ organization is seeking advice on its next step, Danyluk says, but does not intend to give up the fight.

“Our goal is to ensure that credit-granting institutions aren’t able to sell and market insurance at the point of granting credit,” he says. “That’s the fundamental argument.”

@page_break@OSFI’s ruling is just the latest battle in the ongoing war between banks and insurance brokers over whether or not banks can make use of their extensive branch network to promote and sell insurance.

Banks continue to press the government for expanded insurance powers, arguing that consumers deserve to have more choice, information and convenience when buying insurance.

For the insurance brokers’ part, they argue that consumers’ interests are hurt if credit-granting financial institutions are also able to promote and sell insurance from the same branch.

“The problem we have with banks marketing insurance is the coercion factor, whether it’s obvious or subtle,” says Jim Bullock, registrar of the Toronto-based Peel Institute of Applied Finance, which provides education to insurance brokers. Bullock is also the president of Gold Cross Insurance Agency, which is based in Mississauga.

Banks that can market and sell insurance at the same branch will be tempted to tie the selling of bank products to insurance and to share customer information across business lines, even though both practices are forbidden, Bullock says, and only qualified insurance brokers can properly protect clients’ interests.

Bankers consider brokers’ concerns to be overblown. “There are strong market-conduct rules [to prevent abusive behaviour],” says Canadian Direct Insurance’s Young. “Banks are aware of their role and responsibility in protecting their customers’ information and how they actually act on it.” IE