The federal government intends to stop Canada’s banks from using their online websites to sell insurance.
The announcement—which was met with cheers, and a few jeers, across the country—came more than 18 weeks after the Office of the Superintendent of Financial Services (OSFI) gave banks the green-light to sell insurance online.
Robert (Bob) King, a brokerage owner in British Columbia—and one of the most vocal opponents to banks selling insurance directly—was delighted by the federal government’s decision to adopt specific policy measures to stop (and prevent) bank websites from selling insurance.
“This action is only a logical extension of the consumer protection provisions contained in the Bank Act [that relate] to all bank activities,” said King when he read that Federal Finance Minister, Jim Flaherty, plans to stop banks from selling insurance through their online websites.
King—who is profiled in the October issue of Canadian Insurance Magazine—publicly blames OSFI for not enforcing the intent and/or the letter of the law, as stipulated in the Bank Act.
Since the release of OSFI’s June 10 decision, King had launched a letter writing campaign—openly calling for the regulator and federal and provincial governments to enforce the current legislation.
“The legislators already expressed their will in legislation,” King said. “But the regulator chose to apply ambiguity in the bank’s favour rather than in the consumer’s favour.”
In that June 10 decision, OSFI concluded that a bank’s website is not considered a branch under the current wording of the Bank Act.
OSFI spokesperson, Rod Giles, explained that June ruling “was a technical interpretation that was consistent with the existing legal regime.” He added that the in the recent announcement, “The minister has indicated he wants to change that regime.”
As a result, OSFI is consulting with the Department of Finance on changes to the current Act.
Bankers Are Shocked
The fact that the legislation may change—to tighten up current practices regarding the marketing and sale of insurance—is causing the Canadian Bankers Association (CBA) a great deal of concern.
“We are completely shocked that Mr. Flaherty,” would suddenly change his government’s stance on the interpretation of rules under the Bank Act, and to “take this step without any public consultations with Canadians or the banking industry.”
According to the CBA, the Bank Act allows banks to offer a full range of insurance products through subsidiary channels, including “through the Internet.”
Dan Danyluk, CEO of the Insurance Brokers Association of Canada (IBAC), openly disagrees with the bank’s inclusion of websites in the marketing of insurance products. As early as June, Danyluk labeled the use of bank websites to sell insurance directly to branch consumers as a “back door” approach.
Currently banks can sell insurance through separate subsidiary companies, not from within bank branches. However, ambiguity over what constituted a bank branch arose when OSFI ruled that, under existing law, the policy separation did not extend to websites.
This prompted IBAC and independent broker associations (and individual brokers across the country) to lobby the government to tighten policy wording.
“Our efforts to influence change have not gone unnoticed and our plea to government to take steps to protect consumer’s interests has had a positive result,” said Randy Carroll, CEO of the Independent Brokers Association of Ontario (IBAO). “We applaud the government and Minister Flaherty for taking steps to ensure that rules governing bank branches will now apply to bank Internet sites.”
Danyluk echoed these sentiments in a public statement, saying, succinctly, that Flaherty’s announcement was “a victory for consumers.”
Impact on Consumers and Brokers
Still, the CBA is disappointed with the federal decision to limit the way in which banks can market and sell insurance.
“It is clear that the losers here are consumers, who will be denied access to the information they need to make informed financial decisions,” wrote the CBA.
Minister Flaherty’s announcement came shortly after Liberal MP Alexandra Mendes introduced a private members bill with the intent, she said, of leveling the playing field between Canada’s large banks and independent insurance companies.
In an interview with Canadian Press, Mendes charged the banks with “using outdated regulations to the disadvantage of the independent insurance brokers, companies and agents to advance their own insurance agendas.”
Perhaps that’s why King, who owns and operates four brokerages in British Columbia, considers this latest development a victory, simply stating: “Well done Mr. Flaherty! Shame on you OSFI.”
Originally published in Canadian Insurance Business Magazine in October 2009