Canadian Underwriter

Federal budget contains ‘unexpected positive development’ for brokers re: Bank Act

April 23, 2021   by Greg Meckbach

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This year’s federal budget could keep the restrictions, on banks selling home and auto insurance, for at least another four years.

“There was an unexpected positive development in the budget for us,” Peter Braid, CEO of the Insurance Brokers Association of Canada, told Canadian Underwriter Wednesday.

“The federal government has signaled in the budget that they intend to delay the next review of the Bank Act by two years until 2025, to more fully understand the impacts of the pandemic on the financial services industry.”

Deputy Prime Minister Chrystia Freeland tabled the 2021-22 budget Monday in the House of Commons. In that document, the federal government proposes to extend the sunset dates of the Bank Act, the Insurance Companies Act­ and the Trust and Loans Companies Act to 2025.

The Bank Act currently has a sunset clause with an expiry date of 2023.

So the budget proposes to delay the automatic review of the Bank Act by two years to 2025, Braid told Canadian Underwriter.

As it stands, Canadian banks own subsidiaries that write home and auto insurance but are prohibited from providing consumers access to the product at the point of sale, or by linking their web pages to other web pages through which insurance other than “authorized” types are sold. None of those “authorized” types are home or auto.

Basically this means if a client is getting a loan or credit card, the lender at the point of granting credit may offer insurance covering the risk that the borrower dies, loses their job, or suffers a disability. But if a client is getting a mortgage or auto loan, that lender is not allowed to sell them home or auto insurance.

While a client can buy home or auto insurance from TD, TD Insurance is a completely separate organization from TD Bank’s retail banking operation (although both are a part of the TD Bank Group). So a client cannot walk up to a bank teller at TD and do both their banking and purchasing their home and auto insurance at the same time in the same office.

Generally, P&C brokers are opposed to letting banks sell insurance at the point of granting credit.

By postponing the Bank Act review to 2025, the federal government would be extending an important consumer protection provision by two years, Braid said.

“Insurance brokers across Canada continue to promote and defend this important principle [of not selling insurance at the point of granting credit] on behalf of consumers and the insurance industry,” said Braid.

Section 416 (2) of the Bank Act states: “A bank shall not act in Canada as agent for any person in the placing of insurance and shall not lease or provide space in any branch in Canada of the bank to any person engaged in the placing of insurance.”

Canadian Underwriter asked Braid whether there is still a concern over a push to loosen or remove the restrictions on banks selling insurance.

“All indications are that the government, the federal political parties, remain committed to the separation of the pillars of banking and insurance and the consumer protection provisions Section 416 provides, but we really need to never let our foot off the pedal with respect to that concern, and [we] need to make sure that the strong public policy commitment remains.”

The federal Insurance Business (Banks and Bank Holding Companies) Regulations do make an exception, allowing banks to sell the following eight types of insurance:

  • credit or charge card-related
  • creditors’ disability
  • creditors’ life
  • creditors’ loss of employment
  • creditors’ vehicle inventory,
  • export credit,
  • mortgage, or
  • travel.

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