Brokers need to get active and get political in light of the recent ruling by the Office of the Superintendent of Financial Institutions (OSFI) on what constitutes a bank branch.
In statements made on Wed. June 10, 2009, OFSI spokesperson Jean Paul Duval clarified that the Bank Act could not prevent banks selling insurance products from their online sites.
Duval explained that while “the Bank Act applies to all operations of the banks,” and that online insurance sales by bank websites would need to be processed by a separate entity other than bank personnel, the Bank Act could not specifically prohibit banks from using their websites to link to insurance products.
“Banks are allowed to own insurance companies and brokerages to carry out these types of activities; [these brokerages and insurance companies] have to be clearly separated and not within the bank branch,” says Duval. However, as it is currently worded the Bank Act can not prohibit banks from linking to insurance products from their bank website, explains Duval.
This clarification came as a disappointing surprise to Dan Danyluk, CEO of the Independent Brokers Association of Canada (IBAC), particularly considering the association had already lodged complaints on how banks appear to be circumventing laws around selling insurance products.
“It’s just common sense that an Internet [site] is a bank branch,” he says.
“We have a couple of other complaints [on how banks are selling insurance] that we believe is outside the intent of parliament,” says Danyluk. “[Banks] are trying to walk a regulatory fence without falling off; this, despite the fact that it says in the Bank Act, and is reinforced every four or five years, that banks are not to market and sell insurance.” He adds that these actions “put the consumer in a difficult and unfair position.”
In cities across Canada, banks are setting up bricks and mortar insurance divisions separated from their bank branches by a glass wall; other banks are offering pamphlets and allowing tellers to hand out business cards of insurance professionals associated with the bank. All of this goes against the intent of the Bank Act, says Danyluk.
Bob King, a seasoned broker with thriving general insurance offices in Vancouver, Burnaby and Victoria, British Columbia, believes that this recent interpretation of the Bank Act puts the industry into a precarious position.
“I sell insurance over the Internet, so I have no problem with this [form of distribution], but allowing banks to sell insurance over the Internet and [having even a perceived] tie with banking products goes against the spirit of the law.”
He adds that the erosion of the regulatory pillars in Canada will only have a detrimental effect on the consumer.
“[This decision leaves] regulators stripped bare,” says King.
Disturbed by how this recent decision could hurt a well-capitalized, well-regulated P&C industry, King took his concerns public. He released a public letter of concern to his MPPs in British Columbia.
He urges brokers across the country to do the same.
Political action is exactly what the Independent Financial Brokers of Canada (IFB), an association whose membership includes a large number of financial advisors who sell life insurance products, is advocating. In a bulletin released by the IFB to its members, the association expressed its concern about continued online insurance sales by banks.
“IFB has similarly complained on a number of occasions to bank regulators that the increased use of websites and locating physical insurance locations next to bank branches is contrary to the spirit and intent of the restrictions contained in the Bank Act. In fact, we specifically identified the issue of Internet banking and the sale of insurance through bank websites to the department of finance in August 2006, when we responded to its white paper on Bank Act changes,” the IFB wrote to its members.
The note adds, “IFB will continue to highlight this regulatory gap to financial regulators and politicians. We also ask you to support the actions of the IBAC by writing or contacting your MP to express your concerns.”
As a result, IFB is urging its members to support IBAC’s political advocacy.
IBAC has written to OFSI a few times, raising concerns that banks and their agents are providing information to consumers about their insurance products through in-branch communications—a violation of Section 416 of the Bank Act, which essentially prohibits the sale of insurance products in a bank branch.
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.
If OSFI’s doesn’t budge, the IBAC hopes the government can 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.
Originally published on CITopBroker.com on June 11, 2009 and co-written by Mark Noble