C.D. Howe study questions ban on bank branches selling insurance

Weighing in on the Bank Act review debate, the C.D. Howe Institute has just released a study that questions the current prohibition on banks selling most kinds of insurance in their branches.
“A few years ago, the case for the prohibition was reasonable,” according to the study’s author, Mark R. Daniels, who has experience in the life and health insurance sector. Today, Daniels concludes in his study, “broader access to a range of insurance products, supplied by an existing network of reliable, well-capitalized financial services providers, is surely in the interest of consumers.”
In a press release announcing the study, Daniels says the only real outstanding question is who would regulate sales of insurance by banks? “Amending federal legislation to incorporate provincial regulation could offer part of the answer,” he says.
The C.D. Howe Institute has publicly released its study about two weeks after Prime Minister Stephen Harper addressed the Insurance Brokers Association of Ontario (IBAO)’s 86th annual convention in Niagara Falls. In his speech, Harper recommitted himself to his government’s campaign pledge not to give banks the power to sell or provide information about insurance products through their local branches.
This public policy position should be reviewed, the study’s author believes. “The insurance industry’s concerns about having to compete with banks on an unequal basis, particularly because of their lack of access to the payments system and the CDIC (Canada Deposit Insurance Corporation), have been addressed to some degree,” the study remarks. “Insurers can now be members of the Canadian Payments Association, although not as direct clearers, and any advantage that CDIC backing might confer on the banks has become less valuable in the sense that improved economic conditions, regulatory oversight, and prudential requirements have made the likelihood of bankruptcies of either banks or insurers more remote.”
Ultimately, the study concludes: “It is time to move beyond a prohibitionist stance toward the sale of insurance by banks, and to work toward a regime that offers the right balance of consumer protection, promotion of competition, and regulatory certainty.”
“On consumer protection, policymakers need to satisfy themselves of the sufficiency of the recent framework’s privacy controls and provisions that limit coercive tied selling. In addition, it would be wise to resolve the pending regulatory issue before going any further along the road to expanded insurance powers for banks.”
The full study is available at: www.cdhowe.org/pdf/backgrounder_97.pdf