Canada\u2019s big banks have recently been trumpeting double-digit growth in their online life insurance sales channels. But the future of that business seems less secure after a series of exchanges in early October between the banks and the Government of Canada.
The latest battle in the turf war over insurance sales began when Finance Minister Jim Flaherty sent a letter to Nancy Hughes Anthony, president and CEO of the Canadian Bankers Association<\/b>, asking that CBA members comply with the intent of the Bank Act, which prohibits banks from selling all insurance \u2014 property, casualty, life and living benefits \u2014 from branches.
A website constitutes a virtual branch, the government says. The reason for the prohibition, the government argues, is to protect consumers\u2019 privacy and prevent banks from sharing information between the bank branch and the bank\u2019s insurance arm.
The CBA has countered that the banks already operate their businesses in silos; in response to Flaherty\u2019s request, the CBA simply said: \u201cNo.\u201d
\u201cIt\u2019s business as usual,\u201d says Andrew Addison, spokesman for the CBA. \u201cThere\u2019s nothing currently in the Bank Act that would require us to do anything differently.\u201d
The Office of the Superintendent of Financial Institutions<\/b> ruled this past summer that the online world is not included in \u201cbranch.\u201d
A spokesperson for Toronto-based RBC Insurance Services Inc. <\/b>says it is \u201cfully compliant with existing rules and regulations of the Bank Act.\u201d
Byren Innes, vice president and a director with NewLink Group Inc. <\/b>, a consultant in Toronto to some of the bank-owned insurers, says that the banks are \u201cnot in contravention of anything, according to the regulator, at this point.\u201d
According to the Bank Act, the banks, broadly speaking, aren\u2019t allowed to sell insurance directly from their bank branches. But there are many exceptions to this decades-old rule and, slowly, the banks have been entering the insurance market.
Banks are permitted to sell insurance products from their branches that protect their own debt products, such as mortgages, loans and credit card debt. Consumers can buy these types of insurance products directly over the telephone and over the Internet.
The most recent version of the Bank Act, last reviewed in 2006, says that once consumers buy credit products, they become clients of the bank-owned life insurer, which can then sell the client any product it underwrites at the time the credit product is sold. The Bank Act also says that bank-owned insurers can market and sell insurance to credit card clients, or to the general public, as long as those insurers don\u2019t mine their parent bank\u2019s consumer data for marketing purposes.
Although websites are not the banks\u2019 only insurance sales channel, by any means, Innes says, many banks have been counting on this source of business for some time.
Toronto-based Scotia Life Insur-ance Co. <\/b>launched an upgraded website in the early autumn and a life insurance product line more recently that it intends to sell predominantly online. CEO Mark Cummings says he defers to CBA on this issue.
Toronto-based TD Insurance Co. <\/b>sells more critical illness insurance policies than any other institution \u2014 all online. It also backs the CBA on this issue.
BMO Life Insurance Co. <\/b>, which took a bigger step into the life insurance world with its purchase of AIG Life Insurance Co. of Canada this past spring, didn\u2019t return Invest-ment Executive\u2019<\/i>s calls.
If banks continue to operate the way they currently do, Flaherty\u2019s office replied, the government will take steps in the near future to rectify the situation so that it reflects the intent of the Bank Act. Chisholm Pothier, speaking for Flaherty\u2019s office in Ottawa, did not clarify whether that meant through legislative or regulatory change, or its timing.
In his letter to the CBA, Flaherty states he had been in talks with the Insurance Brokers Association of Canada<\/b>, which has publicly objected to the bank\u2019s insurance channel and says it runs counter to the Bank Act.
It\u2019s a finicky turf battle emblematic of a bigger war over wealth management. Gordon Henderson, head of BMO Life, has said in the past that a bank cannot offer full financial advice without operating on the insurance side.
This is one topic on which the banks sing from the same hymn book. They say that online life insurance sales meet the needs of an underinsured middle-market client. Innes says that financial advisors, by and large, do not sell insurance to this market.
@page_break@By contrast, Terry Zavitz, an advisor and first vice chairwoman of Advocis<\/b>, says plenty of advisors market to this group, and she applauded the IBAC\u2019s position.
\u201cThere\u2019s nothing wrong with [bank advisors] selling insurance, as long as it\u2019s clear that it\u2019s a separate business and that they follow all the rules and regulations that an independent advisor does,\u201d says Zavitz, who runs Zavitz Insurance Inc. in London, Ont. \u201cThe consumer\u2019s privacy needs to be preserved, and we need an even playing field.\u201d
Jim Bullock, registrar of the Peel Institute<\/b> in Toronto, which trains advisors in how to sell life insurance products, has long argued that life insurance simply should not be sold over the Web, and that it\u2019s best that a licensed advisor walk people through the application process.
Policy applications, Bullock says, are complicated: \u201cIt\u2019s impossible to get the applications right without help.\u201d\t IE<\/b>
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