Canada’s banks are making new efforts to get a bigger slice of the insurance industry pie, with two actions that have advisor groups charging the institutions are proactively trying to influence changes to the Bank Act.
RBC Insurance Services Inc., flush with the success of a summer pilot project, is pushing ahead with a program to open some insurance branches next to regular branches. The Canadian Bankers Association, meanwhile, is pressuring the federal government to allow bank branches to dispense more insurance information to consumers.
The CBA’s action is part of its ongoing efforts to persuade Ottawa to repeal federal Bank Act restrictions that keep banks from offering anything more than travel and creditor-related life and disability insurance in branches. Banks are permitted to market directly to customers through mail and the Internet, as long as they don’t target particular customer groups. Bank sell other insurance products through insurance companies they have purchased, through proprietary sales forces and through insurance-licensed securities advisors. The act is up for review in 2006.
The success of RBC Insurance’s first branch — which opened next to a regular bank branch in Scarborough, Ont., this summer — has inspired it to move beyond the pilot stage, says Neil Skelding, president and CEO of the Mississauga, Ont.-based insurer. Three more Ontario branches are planned for this year in Kingston, Toronto, Hamilton, and a fourth just outside Montreal, he says: “[Beyond that], 25 more are on the drawing board.”
CIBC, Bank of Montreal and Bank of Nova Scotia do not intend to follow RBC Insurance’s retail lead at this point. Instead, they are content to follow the CBA strategy.
Meanwhile, TD Bank Financial Group, through its insurance subsidiary TD Meloche Monnex, continues to focus on what it calls “direct model” marketing — connecting with consumers over the Internet and via call centres.
In any event, RBC Insurance says, it will be well positioned if Ottawa eventually allows insurance sales in bank branches. It will simply knock down the walls between its insurance and bank branches.
Advocis and the Independent Financial Brokers of Canada, however, both express grave reservations about the strategy. “Royal Bank [of Canada]’s actions compromise the current regulatory environment governing financial institutions,” IFB president David Barber wrote in a May 10 letter to federal Finance Minister Ralph Goodale.
Barber says RBC Insurance’s actions “compromise [the Bank Act review] process and force parties [such as the IFB] to respond in a piecemeal fashion and on short notice, while providing the bank with the opportunity to pretest the public’s response to cross-selling in advance of formal public debate.”
Goodale has not responded to the IFB.
Meanwhile, in a recent speech, CBA president and CEO Ray Protti labelled the Bank Act restrictions on providing in-branch insurance information as “anti-consumer.”
Branches should be able to provide such information, and make referrals to outside insurance professionals about specific insurance products, Protti says. As well, branches should be able to gather information tailored to a consumer’s needs with the consumer’s permission and, with client consent, pass on “relevant client information” to an insurance professional.
Advocis and the IFB, however, say the in-branch restrictions are not anti-consumer.
“We still have a concern about ‘tied selling’,” says Advocis president and CEO Steve Howard. Politicians looking at the Bank Act next year will probably have the same concerns about tied selling that they had during the last round of Bank Act revisions, he says: “We think and trust that they will.”
IFB executive director John Whaley is also concerned about consumer privacy. Health records associated with insurance information don’t need to be in the hands of people in the lending business, says Whaley.
Howard calls the CBA proposals “a trial balloon” designed to get a reading on where the insurance industry and politicians stand on the issue. Whaley says the bankers’ group is taking “small steps” to gain acceptance.
Banks providing information in branches is a key concern, says Howard. Anyone dispensing insurance information and holding themselves out as a professional should have the proper insurance designation and be licensed by provincial insurance authorities, he says.
The same questions have to be asked if the banks are allowed to provide outside referrals, he adds. Are those outside advisors designated and licensed professionals?
The other recommendations involving information-gathering and sharing “raise grave concern about clients’ privacy being respected,” says Howard.
@page_break@The CBA’s renewed lobbying, he notes, comes as the insurance industry and banks square off in a Supreme Court of Canada case expected to be heard in early 2006. At stake is the issue of how insurance marketing by banks — a key element in the CBA’s proposals — should be regulated.
The insurance industry’s long-established position is that regulation of insurance distribution is a provincial matter. The banks have argued that banking is a federally regulated activity that should get “interjurisdictional immunity.” Arguing that successfully at the SCC would give bank employees immunity from provincial insurance licensing.
The Bank Act has no specific regulations about insurance sales and marketing, so insurance advisors who are guided by provincial regulation are concerned a change could give bank employees an unfair advantage. They are also concerned that consumers would get insurance advice from someone who is not properly trained or regulated.
Advocis will seek intervener status from the SCC to enable it to argue that the banks should not be able to get out from under provincial insurance regulation. The IFB is not seeking intervener status, but it will be watching the case closely, says Whaley.
IE