Banks make their pitch to the

Representatives from two of Canada’s big banks say they would still like to see legislation that would allow them to sell life insurance in branches. But they insist even if such a change were to come about, it wouldn’t have a significant impact on the independent insurance brokerage channel.

That’s because the banks would end up handling what Neil Skelding, president of RBC Insurance, says is a huge market of under-insured Canadians, with little money to spend on life insurance.

“What’s happened over time is that the brokers rightly have moved up market, so you have a small increase in policies, but the face amount and the total premiums are going up, so they’re going to focus on the higher-net-worth market,” Skelding said at an RBC Capital Markets conference in Toronto on Wednesday. “We have a great advantage in insuring the uninsured or under-insured, and we have a pretty efficient distribution system that allows us to do that.”

Bernard Dorval, group head, business banking and insurance, TD Canada Trust, claims that 70% of lower-income Canadians are “grossly” under-insured and the banks can help. “That’s one thing that we can do very well. It’s a natural extension of what we do and because we are positioned to provide simple solutions in a very efficient way.”

“Wherever there is a gap in insurance coverage, we eventually end up paying a price. That’s true for businesses and individuals. So this is important for the economic prosperity of any country,” Dorval adds.

This so-called “bancassurance” model is viable, Skelding says, pointing to the mutual fund industry as evidence. “The banks have brought more efficiency to that marketplace and have been able to bring small investors into the mutual fund space and have grown the market as a whole.”

Skelding maintains the banks aren’t trying to move in on the insurance broker’s territory. “They’ve been very successful in the middle and up market, and they provide great value, but there are still a huge number of households who don’t have any coverage whatsoever. In our adjacent insurance branches, we’ve found that the life insurance is for first-time buyers and for very small amounts, amounts that would not interest the brokerage community.”

Advocis, which lobbied strongly to keep life insurance out of banks, calls Skelding’s assertion “dubious.”

“The banks are going to have a tough time positioning themselves as ‘friends of the little guy,'” an Advocis spokesperson said. “The banks can talk about ‘territory’ if they wish. For us and for consumers, the issue is privacy and sales pressure. The nature of life and health insurance is simply too personal and the relationship between borrower and lender too imbalanced for the two to come together under the same roof.”

“The right balance exists now,” the spokesperson added. “Today, banks may sell life and health insurance through their subsidiaries, within the same regulatory framework as everyone else, on a level playing field.”

The Bank Act has restricted life insurance sales in banks since 1923, Skelding noted in his presentation. And there’s no sign those restrictions will be removed anytime soon (last year’s review of the act didn’t even mention the subject) and Skelding says they are preparing their business based on the current environment. “But that model and strategy would work even faster if we got legislative change,” he added.

As for Dorval, he says TD supports the concept of providing more information about insurance in branches for customers and having the ability to refer them to an insurance specialist if they choose to act on that discussion.

But he says although some life insurance business would end up being conducted in branches in the event of legislative change, “we strongly believe that most of the business will still be transacted outside the branches.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com