Insurance, banking lobbyists line up

The new Conservative government was sworn in at 11 a.m. this morning and industry forces are already vowing to lean hard on Jim Flaherty, the country’s new Finance Minister.

Days before Stephen Harper was sworn in as the 22nd prime minister by Governor General Michaelle Jean at Rideau Hall in Ottawa, reports in the Globe and Mail and National Post said the bank lobby already has plans in place to target the new finance minister in their efforts to get a more relaxed take on regulations governing the retail sale of insurance and insurance marketing in bank branches.

The new government has until October 24 to deliver its five-year Bank Act Review, or extend current, existing legislation — for up to six months — while parliamentary committees work on the file. In the most recent roundup of opinion on the matter, “sources” to the Globe and Mail say bank executives are pessimistic that the current rules will be relaxed.

The gamut of arguments, both for and against bank insurance sales and marketing, ranges in scope from plausible at times to downright self-serving, on both sides.

Citing convenience, competition and their ability to reach more clients, many of whom wouldn’t normally consider their insurance needs, banks argue that selling insurance in branches, or at least being allowed to give insurance related information and referrals in the event that a client has an un-served need, is the most consumer friendly course of action that policy reviewers could allow.

Insurance industry representatives say banks will abuse their existing databases of client information in direct marketing campaigns, and could coerce clients into buying products. More alarmist critics even suggest that banks will arrange contracts in such a way that the bank as creditor will come first in the line up to receive insurance benefits if a client dies or declares bankruptcy. Currently, insurance proceeds are passed directly to beneficiaries and not to an estate’s creditors. They also warn that access to a client’s health information could be used to affect their applications for credit.

Most recently, Ontario credit unions weighed in when the Financial Services Commission of Ontario and the Deposit Insurance Corp. of Ontario began a review of provincial legislation governing credit unions and caisses populaires.

Howard Bogach, chief executive at Credit Union Central of Ontario says that piece of provincial legislation should be relaxed and credit unions should be permitted to sell insurance in order to level the proverbial playing field and give credit unions a competitive advantage over the banks.

Also touting the benefits of competition, greater choice and expanded access to services for lower income earners, Bogach, in a recent Financial Post column, says to compete effectively, Ontario credit unions “must be given this power well before it is given to the banks.”

Merlin Chouinard, president of Independent Financial Brokers (IFB), rebutted the argument in a later column, saying the advantage might help credit unions but would in turn put community based insurance brokerage businesses at a disadvantage if credit unions, themselves the “big players” in small communities, were allowed to sell insurance.

He points out that insurance is not a commodity that can be bought and sold like other products and that banks and credit unions would likely be hard pressed to offer “the same personalized attention” provided by insurance brokers, implying consumers would be harmed by this lack of attention to detail.

Chouinard also raises the spectre of tied selling and abuses that could be wrought on consumers if banking institutions were allowed to have access to all personal health and financial information.

The last major revision of the Bank Act was completed in 2001.

Filed by Kate McCaffery Advisor.ca, kate.mccaffery@advisor.rogers.com