Neil Skelding, CEO of RBC Insurance Services Inc., says the company will comply with federal rules that prohibit it from marketing insurance on its parent bank’s website — even though, he says, the rules are “anti-competitive.”

Skelding, who works out of the firm’s head office in Mississauga, Ont., says the rules “could be published at any time now. Based on what we think will happen, we’re prepared.”

It was a year ago in October that federal Finance Minister Jim Flaherty surprised the bank-owned insurers by telling them they could no longer sell any type of insurance through their websites.

Flaherty said at the time that doing so contravenes the spirit of the Bank Act. Not surprising, the announcement was hailed by the Insurance Brokers Association of Canada, which represents about 35,000 brokers of property and casualty insurance.

The Bank Act prohibits the sale of insurance from bank branches, and Ottawa’s opinion is that a website is an extension of the branch network. Ottawa holds this view despite an opposing ruling from the Office of the Superintendent of Financial Institutions earlier in 2009.

More than 50% of all auto insurance is sourced via the World Wide Web, says Skelding. And on the life and health insurance side, banks have sold high volume but low premium “creditor” life and health insurance on mortgages, credit cards and lines of credit over the phone and online.

Like all of the big banks, RBC Insurance’s ultimate parent, Royal Bank of Canada, has spent part of the past year on its systems, making sure it can be compliant with Ottawa’s rules when they are released. Until then, it’s business as usual.

However, Skelding notes, there isn’t another industrialized country that restricts insurance sales via the web. He contends that regulating access to websites is an “arcane” notion: “We have search engines that allow you to find any website, no matter what things are put in your way. This will not affect consumer’s ability to find competitive pricing on auto insurance and on home and life insurance.

“Consumers are shopping for the best deal,” he adds. “To prevent free access to alternatives is anti-consumer and anti-competitive, in my view.”

Although Skelding values the online business, RBC Insurance’s heaviest salvo across the bow of the traditional life insurance industry has been to open up insurance shops, sometimes literally, next door to its bank branches. RBC Insurance now has 52 branches across the country. Growth of the channel, says Skelding, “has continued to exceed our expectations.”

With shareholders’ equity of more than $1.5 billion at the end of 2009, RBC Life Insurance Co., a subsidiary of RBC Insurance, is by far the largest bank-owned life insurer. RBC Life’s income, $119 million in 2009, also ranks No. 1 in the bank-owned sector.

RBC Life’s annual income is a drop in the bucket for the parent bank. But RBC Life’s bottom line has grown by more than 100%, from $58 million in 2007. RBC Life posted $10 million in net income in the quarter ended June 30.@page_break@Life insurance is a relatively small part of the parent bank’s overall insurance business, which reported more than $107 million in income in the same quarter.

Skelding says the “anchor” for RBC Insurance is actually on the P&C side: “We have a large auto insurance business, which allows us to acquire clients very quickly and offer them our life and health suite. Our ability to bring in additional clients and offer them products under a dually licensed sales force that’s out in the marketplace is very, very strong.”

Propriety insurance sales through RBC Insurance’s mobile career sales force, a broker call centre and in-branch dual-licensed agents drives growth. In the past four years, the company has hired about 240 branch salespeople. Together, the three distribution points make up about 800 licensed salespeople.

The call-centre includes a partnership with Edge Benefits Inc., based in New-market, Ont., through which the centre sells so-called “simplified” life insurance. Edge Bene-fits provides product administration and markets disability insurance, the latter mostly to small-business owners who do not have the finances to fund a full employee-benefits program.

Not to be forgotten is RBC Life’s relationship with Toronto-based PPI Financial Group Inc. , the national managing general agency and brokerage that has carved out a niche in the high net-worth market. RBC Life provides an exclusive universal life product through that channel.

“We have a strong distribution network and a large client base that we can cross-sell to,” Skelding says. “It makes us unique. Our cost to acquire clients is lower than our peers. We have competitive pricing with higher returns and less risk.”

On that note, Skelding officially distances RBC Insurance from the guaranteed minimum withdrawal benefit product market, which, he admits, his firm had intended to enter at the end of 2008.

Referring to the market nosedive that left manufacturers of GMWB products with massive unfunded liabilities well into the future, Skelding adds: “We weren’t smarter than anybody else. We just waited a little longer to see what would unfold.”

However, RBC Life will launch its first annuity product in January 2011. “It won’t work well for the high net-worth client who wants guarantees and a lot of features,” he says. “But on a risk/return basis, we think our product is going to work very well. And we think it will do for clients what they need, in the market it’s designed for.”

RBC Insurance will also relaunch a handful of other products for the middle market. Ultimately, that’s Skelding’s argument for the business model: financial planners and independent agents operating through MGAs take the big business; RBC, along with the other banks’ insurance subsidiaries, is aiming squarely at first-time insurance buyers — a growing middle market in Canada in which RBC Insurance is a leader.

“We’re expanding the market as a whole,” Skelding says. “We’re not doing $1-million joint-last-to-die universal life; we’re doing basic term business in a growing market. And we’re growing it substantially.”

RBC Insurance’s domestic fo-cus was solidified with the sale last month of its U.S. life insurance subsidiary. Skelding says his company will focus on developing its Canadian business.
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