March 7, 2006 by Canadian Underwriter
Royal Bank President and CEO Gordon Nixon said recently that a Canadian law preventing banks from retailing insurance “does not make any sense.”
“Canada is the only developed country in the world that prohibits consumers and small business owners from buying insurance products, or even getting information about insurance from their bank,” Nixon said in a Mar. 3, 2006 address to the bank’s 137th annual general meeting. “The absurdity of this is highlighted by the fact that stores like Loblaws and Costco can provide this financial service, but banks that are in the business of providing financial advice, cannot.
“This simply does not make any sense to us, nor to our customers, who would benefit from the increased competition, greater access, broader choice and better pricing that bank distribution of insurance would provide.”
Nixon made his remarks as the government contemplates its required review of the Bank Act, which does not allow banks to retail insurance products. The Liberal Government announced last year it would shelve discussion about reforming the Bank Act until after the federal election in January 2006. Since then, the new minority Conservative government has promised to leave the restrictions in place.
In the meantime, insurance brokers are continuing their ongoing lobby to maintain restrictions that currently ban banks from retailing insurance through their local branches. Insurance brokers argue that banks entering the insurance market would favor banks in part because of the potential for banks to use tied-selling tactics and all but eliminate the role of independent brokers.
Nixon said strict government regulation would prevent the ability of banks to resort to tied selling. “Ironically, one of the excuses used by the insurance industry in arguing against allowing banks to compete for insurance business is their concerns about information privacy and tied selling,” he said. “Yet, the banks are the only financial providers in Canada that are governed by a consistent set of strong, national regulations on both these issues.”
Nixon went on to say that changing the Bank Act would create competition without eliminating the independent broker distribution channel. “History has shown that when new competitors enter a market, they actually increase the size of the market for all competitors.
“For example, when banks began selling mutual funds, access went up, fees went down, and the size of the market increased significantly. Bank entry into the mortgage market also led to greater availability of mortgages across the country as well as more competitive rates.
“And, in other countries that have opened their insurance markets, not only have consumers benefited, but market expansion has meant that good insurance brokers have thrived as they do, incidentally, in the province of Quebec.”
Nixon also observed that while “bank branches are prohibited from selling insurance, similar restrictions on bank products do not apply to the insurance industry.
“For example, Manulife, which is now larger than five of the six big banks, can sell mortgages and savings accounts to their clients. The network of insurance brokers that owns Alberta-based Bank West can conveniently offer their clients a full range of financial products including insurance, investments and banking. And credit unions in Quebec, which are large and direct competitors of banks, have been able to sell insurance since 1987.”