If Advocis gets its way, provincial insurance regulators will one day oversee a new breed of licensed salespeople that have managed to fall through the cracks until now: the sellers of creditor insurance who mostly work at the banks.

Advocis, the financial advi-sors’ association of Canada, made the recommendation for the new licensing to the joint working group of the Canadian Council of Insurance Regulators and the Canadian Insurance Services Regulatory Organizations. It was among a number of submissions to the regulators after they published a discussion paper this past winter on the sales of creditor insurance and asked for industry feedback.

“Our submission calls for a form of limited or restrictive licensing,” says Peter Tzanetakis, Advocis’s senior director of regulatory affairs. The recommendation includes a regime comprising an entrance examination, continuing education, and errors and omissions insurance — all services that are offered by Advocis

The catch-all regulatory term for this type of insurance is “incidental sales of insurance”; it includes car dealerships that sell creditor insurance and travel agencies that sell travel insurance, for example. But, by far, the biggest batch of such business is that performed by bankers.

The lack of regulatory oversight for this type of insurance has been known for several years, but the fact was made clearer by a Supreme Court of Canada decision on May 31, 2007. In the case of Canadian Western Bank v. Alberta, the SCC upheld the Alberta Court of Appeal’s ruling that all chartered banks were under the watch of the provincial insurance regulators with respect to all of the insurance they’ve been allowed to sell since 1992 under the Bank Act.

The SCC ruling spurred the regulators into action and, at the end of their discussion paper, they asked industry participants how best to look after consumers. All of the submissions were made public in June on the CCIR’s Web site.

On the table is a massive tranche of business by the banks’ life insurance subsidiaries — mostly in the form of creditor health and life insurance sold in conjunction with mortgages, credit cards and other forms of loans.

The Bank Act doesn’t allow the banks to comb client data to cross-sell life insurance policies, but regulations do allow them to sell certain “unauthorized” life and health insurance products, including credi-tor insurance and accidental death policies. Once the bank-owned insurer sells an accidental death policy to a client, it can then sell the client its entire suite of products because the client has become a client of the life insurance subsidiary.

Toronto-basedTD Life Insur-ance Co., for example, says it sold 200,000 critical illness insurance policies in 2006. This represents 23% of the total CI policies sold through group and individual channels that year, according to data from the Canadian Life and Health Insurance Association.

Scotia Life Insurance Co. doesn’t sell any CI insurance, but it sells guaranteed issue life, hospital cash insurance, term life insurance and accidental death insurance.

BMO Life Insurance Co. and, increasingly, RBC Life Insurance Co. are also in the mix.

None of the bank-owned life insurance companies are among the top 10 in total insurance sales based on premiums. Their policies are generally smaller, but the line of business is nonetheless a growing and important one for them — and, arguably, for consumers.

Heavyweight industry organizations such as the Canadian Bankers Association and the CLHIA, the latter of which counts both traditional insurers and bankers among its membership, argue that the banks provide insurance to a large portion of the population that insurance advisors tend to overlook.

“Unlike the situation with life agents, where many Canadians do not have an agent, 99% of Canadians have an account with a bank or other financial institution,” writes Terry Campbell, the CBA’s vice president of policy, in the association’s submission. “On average, more than 50% of families with mortgages have mortgage insurance; and this product appears best able to meet the needs of middle- and lower-income families.”

Generally, the traditional insurance manufacturers and the banks are in favour of regulation that more closely resembles the status quo. They support the call for industry-developed, principles-based oversight of this sales category. These principles include clear disclosure for the consumer; access to more detailed information for the consumer; and a 10-day free-look period, which is already part of the insurance industry’s approach to sales.

@page_break@Nowhere do the insurers and bankers mention a new licence, but they do acknowledge that a knowledgeable salesperson is important — and there at least seems to be willingness to consider licensing.

“We want the consumer to be well informed and well served,” says Leslie Byrne, the CLHIA’s vice president of distribution. “The industry has already taken steps to ensure this, but we’re open to discussing with the regulators if we can improve consumer understanding.”

Jim Bullock, registrar of the Peel Institute of Applied Finance in Toronto, also calls for some sort of new licensing in his submission, but he’s more circumspect about what troubles the regulators about this form of insurance sales.

In Bullock’s submission, he mostly takes aim at the regulators’ concerns about the potential incidence of unpaid claims in this form of insurance. The insurance sold by the banks is generally bundled together as group insurance and generally thought to be underwritten after claims are made, but Bullock says this isn’t quite accurate. Instead, he says, all insurers investigate claims after a policy owner makes them. But the simplicity of the banks’ application forms, which sometimes include just four questions, has given the policy owner a low chance of meeting the thoroughness of insurers’ investigations.

“The [TD Life application] form lists four questions and ends with a simple ‘Yes’ or ‘No.’ I calculate that those four listed questions actually ask 61 separate underwriting questions, to be answered by a single ‘Yes’ or ‘No’,” writes Bullock. “If I wanted to design an application form that would induce failure to disclose so I could deny claims, I would just use the bank mortgage life application form.”

An educated and licensed salesperson could better explain the meaning of the four simple questions — and the upshot of the answers — to the consumer.

Bullock also notes in his submission that the industry seems to acknowledge the greater initial underwriting costs — probably in the form of some licensing — might make the banks’ product more expensive and less ubiquitous.

Nevertheless, the long process has just started. Regulators are distilling the submissions; they’ll report on them in the winter and, in the meantime, they’re asking for more information about claims being paid and denied. IE