Many of Canada’s biggest banks are beefing up their insurance businesses, and their direct-distribution channels are gaining prominence as the institutions seek new ways to reach a large, untapped market of Canadians.
Bank of Nova Scotia is the most recent bank of the Big Five to bolster its presence in insurance. In August, the bank’s Canadian insurance subsidiary, Toronto-based Scotia Life Insurance Co. , launched new home, auto, life and health products, as well as its first storefront insurance-distribution branch and an enhanced website.
Scotiabank’s expansion comes a few months after Bank of Montreal boosted its position in the sector with the acquisition of AIG Life Insurance Co. of Canada. The executive teams at Royal Bank of Canada and Toronto-Dominion Bank have also expressed intentions to expand their insurance operations in recent months.
Scotiabank’s new initiatives are part of a broader growth strategy, says Mark Cummings, the bank’s senior vice president and head of insurance in Canada: “We’re really trying to grow our insurance business. It’s a strategic priority within the bank.”
This increased emphasis on insurance reflects the banks’ efforts to expand their client base, Cummings points out: “All the banks have recognized that there are tremendous growth opportunities in this market. It’s a tremendous opportunity to acquire new customers.”
A key part of the growth strategy at many banks is a focus on direct-distribution channels. The banks have paid particular attention to building online presences, as Internet banking continues to grow in popularity. As part of ScotiaLife’s recent initiatives, it became the latest bank to offer free online insurance quotes on its website — a feature that TD’s, RBC’s and BMO’s insurance subsidiaries also offer.
The insurance branch strategy is also gaining momentum, providing a way for the banks to sell insurance in retail offices without breaking the Bank Act rules that restrict the sale of many types of insurance through bank branches.
The new ScotiaLife Financial insurance centre in Mississauga, Ont., is a pilot program that will help the parent bank determine the popularity of the channel.
The branch strategy has already been successful for Toronto-based RBC Insurance Services Inc., which was the first Canadian bank-owned insurance subsidiary to introduce such offices in 2005. RBC Insurance plans to continue expanding its retail office network, which today consists of 43 offices staffed by representatives licensed to sell home, auto, life and health insurance products.
“That channel has worked very, very well,” says Neil Skelding, president and CEO of RBC Insurance. “[The retail insurance offices] provide a convenient face-to-face, on-the-ground opportunity for consumers to buy insurance.”
In late August, a reorganization at RBC Insurance suggested a renewed strategic focus on this channel — along with its other direct distribution activities. The changes involved a number of initiatives intended to strengthen relationships with clients and provide new ways of generating more business from existing clients. For instance, the bank is increasing its cross-selling efforts among customers that it reaches directly.
“If they walk into our retail insurance offices or they come to us through the call centre, that client belongs to us and we can do multiple things with them,” Skelding says. “We’re actually looking at the clients’ needs and working backward into the company and saying, ‘How can we fill multiple needs for that client?’”
Toronto-based BMO Life Insur-ance Co. has also been strengthening its direct-distribution efforts since its acquisition of AIG Canada in April. BMO Life accesses customers through its website, call centres and direct mail.
“We had already been in that business for a number of years, and AIG was also in that business,” says Gordon Henderson, president and CEO of BMO Life, “so we’ve really strengthened our capabilities in that area.”
The greater focus on direct distribution is largely being driven by the opportunities that channel offers for reaching new segments of the population. In particular, first-time insurance buyers tend to be drawn to direct sales channels rather than to brokers. Although entry-level clients typically purchase smaller amounts of coverage with relatively small premiums, banks are eager to bring these consumers into the market and get them into “premium-paying mode,” as Skelding explains: “It’s a lot easier to work with a client if they have a small term policy and they’re used to paying a premium than if they have really never thought much about their insurance needs in the past.”
@page_break@These first-time buyers are part of a massive “middle market” of Canadians who remain underserved in the insurance industry. Statistics from the Toronto-based Canadian Association of Financial Institutions in Insurance show that 64% of Canadian households do not have an insurance broker. This is partially because financial advisors tend to target high net-worth clientele, says Byren Innes, senior vice president and director with Toronto-based insurance consultancy NewLink Group Inc.
“That’s leaving average consumers with nobody looking after them,” Innes says. “Consumers are willing to buy more insurance; they’ve recognized that they’re underinsured, [but] just don’t know how or where to buy it.”
To tap this market, the banks are designing their direct-distribution insurance businesses around providing simple and convenient products that appeal to these first-time buyers. Innes expects this strategic focus, along with the big banks’ ability to leverage their brand names, to help the banks gain market share in the industry.
“Consumers generally have a lot of faith in the banks,” Innes points out. “With the kind of client reach they have, and the client relationships that they have, just by offering it, they will get some sales for sure — and their market share will go up.”
As the banks gain insurance market share, their increasingly accessible direct-sales channels could simultaneously begin to gain ground on the distribution side of the industry. But industry-watchers expect the impact on brokers to be limited as direct channels target different types of consumers.
“I think there’s a segment of the consumer market that still would prefer to deal with a broker, and the advantages that come with having someone who will sit down and look at your overall financial picture,” says Susan Allemang, manager of regulatory affairs with the Mississauga-based Independent Financial Brokers of Canada, “rather than [someone who will] simply focus on selling you a particular product.”
In addition, advisors will remain the primary distributors of more complex insurance products, Innes says: “You can’t sell complicated financial products on a direct basis. That’s where the advisor still has the leg up on the direct channels.”
The banks recognize the value that brokers add in distributing such complex products and, as a result, they are not neglecting their third-party distribution efforts. The banks also realize that insurance brokers and managing general agencies play a key role in helping banks reach the lucrative high net-worth market.
In fact, focusing on both direct and third-party distribution channels has helped RBC Insurance achieve growth by reaching a much broader segment of the population, Skelding says: “We are continuing to focus on the brokers, the MGAs, the intermediaries, because they have strong client relationships and they provide excellent advice to those end-customers — it’s advice that we don’t provide at that end of the market. We’ve found a balance between these two markets that works. We need to focus on both channels to be successful.” IE
Banks flex insurance muscle
- By: Megan Harman
- September 28, 2009 September 28, 2009
- 11:05