Canadian Underwriter

This open banking recommendation is a ‘red flag’ for brokers

August 11, 2021   by Greg Meckbach

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A federal advisory committee’s recommendation to prohibit the use of banking data in underwriting, during the proposed initial phase of open banking in Canada, is a partial but not a complete victory for Canada’s national brokers’ association.

In its final report issued Aug. 4, the Advisory Committee on Open Banking recommended that the “initial phase” of open banking, in Canada, be up and running by January, 2023.

In that proposed initial phase, banking data should not be used for underwriting insurance policies, the committee said in the report.

“Future consideration of insurance in open banking should evaluate potentially discriminatory or inequitable outcomes in insurance availability and coverage in order to ensure consumers would be protected.”

It is the possibility of using banking data for insurance – in a later phase of open banking – that raises a “red flag,” suggested Peter Braid, CEO of the Insurance Brokers Association of Canada, in an interview Wednesday. So the report is not a complete victory for IBAC because the recommendation pertains to an initial phase.

Braid emphasizes that the report is from an advisory committee and any final decision would ultimately be made by the federal finance department.

One concern IBAC has is the long-standing federal policy commitment to keep the pillars of insurance and banking separate, Braid told Canadian Underwriter.

The concern is that if a consumer gives their bank permission to share their data with other parties, what if those other parties dabble in insurance but they are not actually licensed brokers or agents?

Brokers are concerned about banks potentially doing “through the back door what they are not allowed to do through the front door,” said Braid.

“Insurance needs to be sold by a licensed professional and those regulations are governed provincially across the country.”

The federal Insurance Business (Banks and Bank Holding Companies) Regulations prohibits a bank from providing – to a carrier, agent or broker – any information respecting a customer of the bank in Canada. That applies both directly and indirectly.

IBAC made a number of recommendations to the federal government in 2019 on open banking. Among them are that requests for consumer information should be limited to only the data necessary for the proposed application. Consumers should be educated on how their data will be shared and used, as well as the potential risks associated with providing personal financial information, IBAC said at the time.

IBAC also says participating service providers, in open banking, should be required to meet standards with respect to privacy, security and operational stability. Those providers should also be regulated and accredited and a full list should be available to the public.

Essentially, open banking would mean a consumer can direct their bank to allow third-party providers to get read access to that consumer’s banking information.

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