Bank websites can sell insurance: OSFI

A bank website is not a bank branch, according to the Office of the Superintendent of Financial Institutions (OSFI).

Much to the chagrin of insurance broker organizations, bank websites will continue to be allowed to sell insurance products.

Despite an earlier ruling, prompted by complaints to OSFI from Insurance Brokers of Canada (IBAC), OSFI clarified their position on what actions violate the Bank Act, when it comes to banks selling insurance.

IBAC had written to OFSI quite some time ago, raising concerns that banks and their agents were providing information to consumers about their insurance products through in-branch communications. IBAC also expressed concern that banks were also providing information and sales through their online websites.

OFSI examined IBAC’s complaint, assessing whether the actions of banks to link to their insurance providers through online websites violated Section 416 of the Bank Act. Section 416 essentially prohibits the sale of insurance products in a bank branch.

“The banks are allowed to sell insurance through their various insurance companies; they are just not allowed to promote or sell insurance in their branches,” says Rod Giles, spokesperson for OSFI. “For instance, you’ve seen Royal Bank setting up insurance offices right next to its bank branch offices. The Act says as long as those two offices are separate and distinct, that’s fine.”

He adds, however, that “there were a number of provisions in the Act that led us to conclude that the definition of branch is not broad enough to include a bank’s website. In other words, our interpretation of the Bank Act is that the word branch, as it currently reads, does include a website.”

This clarification goes against the letter and the intent of the law, says Dan Danyluk, CEO of IBAC.

“Parliament has said in the Bank Act, and reinforced it every four or five years, that banks ought not to be marketing and selling insurance in their bank branches; the principle there is that credit granting institutions ought not to be selling and marketing insurance at the point of granting credit because it puts the consumer in a difficult and unfair position.”

He adds, “if OSFI has found the legislation limited then obviously there are problems with the legislation.”

Steve Masnyk, manager of public affairs for IBAC, says banks are using websites as a “back door” to sell insurance directly to branch consumers.

“We’re now going to ask members of parliament to put pressure on OSFI to enforce the Bank Act, to realize that although it’s not technically written in the wording of the act that a bank branch includes a website, a website is a de facto branch and the same rules should apply,” Masnyk says.

“More and more people are using banking through the Internet instead of going directly to the branch. What is the difference between having some rules apply to the physical branch and some rules that apply only online? We find OSFI’s ruling contradictory.”

According to Danyluk, OSFI has advised that IBAC and supporters should seek public policy solutions—this could mean lobbying parliamentarians; it could also mean prompting the government to revisit the wording of the Bank Act to possibly include the prohibition of website insurance sales.

“We’ll be looking to have the wording of the Bank Act tightened for sure,” Masnyk says.

Danyluk is particularly concerned considering Canada has one of the most concentrated banking sectors in the world.

“Banks have an incredible influence in Canada… These institutions are now finding ways around the rule.” Danyluk adds, that when Raymond Protti was in charge of the Canadian Bankers Association, the former CEO and president came out and “publicly declared that banks could not be selling or marketing insurance.”

Danyluk confirms: “I’m not besmirching OSFI or other regulators, because everyone knows the intent of the law.”

The decision may have far-reaching consequences for independent insurance providers—particularly since bank websites have replaced the face-to-face interaction of the bank branch for many customers. IBAC’s concern is that the insurance subsidiaries of banks, which are housed on the same website as online banking services, can effectively push their products on those customers.

Originally published on on June 9, 2009 and co-written with Mark Noble

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