Ontario insurance advisors will face competition from credit unions if the Ontario government amends the province’s Credit Unions and Caisses Populaires Act to allow them to sell insurance in their branches.

However, advisors don’t have to worry that consumers will be ill-used as a result of the legislative change, says Howard Bogach, chief executive of Credit Union Central of Ontario, an organization of 173 affiliated Ontario credit unions.

The credit unions are prepared to abide by insurance regulation that protects consumers, such as training and licensing requirements, he adds.

But this promise has not stopped organizations representing insurers and insurance advisors from fighting the expanded powers being given to the credit unions. They cite consumer protection as their chief concern.

Last year, the Ontario government, in collaboration with the Financial Services Commission of Ontario and the Deposit Insurance Corp. of Ontario, began a review of the provincial legislation governing credit unions and caisses populaires, promising amendments by the end of the 2005-06 fiscal year.

Ontario’s Finance Ministry followed up written submissions with a consultation session on Jan. 19, 2006. Several organizations that oppose broadening credit union powers to sell insurance in their branches, such as the Canadian Life and Health Insurance Association, Advocis and the Independent Financial Brokers of Canada, were invited to make presentations.

However, ministry officials didn’t give any indication of their next step. They could issue a position paper, draft legislation or a combination of the two, says J.P. Bernier, vice president and general counsel of the CLHIA: “No timetable was mentioned.”

Under current Ontario legislation, credit unions face the same constraints on marketing insurance in their branches as the banks. For example, they can only sell credit-related life and disability, mortgage and travel insurance. They can also own subsidiaries that sell insurance from separate premises.

Therefore, “insurance retailing” is among the “business powers” raised for review by Finance Ministry officials in their 2005 consultation paper. “Credit unions are seeking expanded power to sell insurance ‘in branch’ as a way to provide a broader range of financial services to their members,” the paper says.

The credit unions say they can fill a need in providing insurance coverage in rural and remote Ontario communities. In many small communities, credit unions are the only financial services providers, says Bogach, and allowing them to sell insurance means consumers can get a full range of financial products, as well as wealth-management and financial planning services. It will also help credit unions stay financially viable, he adds.

Bogach notes that Quebec allows caisses populaires to sell insurance in their branches. In British Columbia, he adds, credit unions are allowed to sell insurance in offices located adjacent to branches. He says Saskatchewan and Manitoba are considering a system similar to the one in B.C.

Insurer and insurance advisor organizations are prepared to counter all Bogach’s contentions. In particular, they argue that giving a credit-giving institution such as a credit union access to a client’s health information should not be allowed. “There is potential for the information to be used [in the lending institution’s favour],” says Susan Allemang, head of regulatory affairs with the Mississauga, Ont.-based IFB. “It may not necessarily be intentional, but the risk is higher.”

Sara Gelgor, vice president of regulatory affairs at Advocis, agrees. While prohibitions against “tied selling” exist, she says, a client could feel “implicit pressure” to buy an insurance product from his credit union.

“It’s a fine line,” she says. For example, a small-business owner may be relying on a credit union for a revolving line of credit. If so, he may feel obliged to buy a certain insurance product without even knowing whether it’s right for him.

The present legislation, which allows credit unions to sell insurance at their subsidiaries, provides “real safeguards,” she says.

Advocis and the IFB deny that small and remote communities are underserved. Many of their members live and work in these communities, say Allemang and Gelgor.

“They go into people’s homes,” says Gelgor. “They meet with them at their kitchen tables — at all times of the day.”

When insurance is sold at the branch of a financial institution, she adds, clients don’t get that type of personal service.

Allemang says the Quebec model has not resulted in a lot of insurance options for consumers. Mouvement Desjardins is the dominant provider of financial products in Quebec, she says, and it offers its own proprietary insurance products. (See a paper on the Canadian Bankers Association’s Web site: www.cba.ca/en/content/general/Appendix%20A(1).pdf.)

@page_break@The credit union battle in Ontario may foreshadow this year’s scheduled review of the federal Bank Act, when similar arguments will be offered by both sides.

Gelgor notes that the Conservative Party of Canada’s election platform specifically promised to maintain the current regulations governing insurance marketing by the banks.

The banks will take their own battle against the insurance industry into another arena this spring. On April 11, they will argue in the Supreme Court of Canada that insurance marketing within branches is a “core banking activity” that should exempt banks from provincial insurance regulation under a constitutional law principle known as “interjurisdictional immunity.” (In January 2005, the Alberta Court of Appeal ruled against this argument in favour of the province’s insurance regulator, the Alberta Insurance Council.)

Ontario credit unions don’t have the ability to make a constitutional jurisdiction argument in the country’s highest court. Both credit unions and insurance companies are governed by provincial legislation. Whether Ontario Finance officials will make a move prior to the Supreme Court battle or the Bank Act review remains to be seen. IE