New bank insurance rules offer clarity

Anyone wanting to voice their opinion on the regulations governing banks in the insurance business should speak up—the comment period closes March 4.The federal government rather quietly issued draft regulations that appear to give the stamp of approval to locating insurance branches near banking branches.

Under the proposed regulations, Section 10 of the Insurance Business (Trust and Loan Companies) Regulations will be replaced by the following:

10. A company shall not carry on business in Canada on premises that are adjacent to the premises of an insurance company, agent or broker unless the company clearly indicates to its customers that its business and the premises on which its business is carried on are separate and distinct from those of the insurance company, agent or broker. (emphasis added)

RBC was the first to launch insurance branches near—but not adjacent to—its banking branches. The branding of the insurance operations is distinct from the banking branches, placing the corporate logo on a yellow background rather than the bank’s distinctive blue. The branches are, of course, clearly branded as “RBC Insurance”.But the new regulations are far from a cut-and-dry victory for the banks, which may be required to further distance their online insurance operations from their online banking businesses.

The proposed regulations are the result of Finance Minister Jim Flaherty overruling an OSFI decision that insurance websites were within the spirit of the regulations, since the banks were not peddling insurance in branch.

The minister apparently felt insurance promotion on a banking website amounted to in-branch insurance promotion, and set into motion a round of consultations to hash out new regulations to address this.

Banks are currently barred from selling non-authorized insurance products on their banking websites, but may sell authorized insurance products. That list is exclusively made up of life and health products, which are sold on credit-related products.

But the new regulation would also bar the banks from providing even the most subtle link to their insurance websites from their banking websites, unless that site is strictly limited to authorized product. The proposed regulation reads:

7.1 (1) The promotion referred to in paragraph 6(b) may take place on a company web page if it relates to an insurance company, agent or broker that deals only in authorized types of insurance and the promotion referred to in paragraph 7(1)(c) or (e) may take place on a company web page if it relates to an authorized type of insurance.

(2) However, a company shall not, on a company web page, provide access to a web page — directly or through another web page — through which there is promotion of(a) an insurance company, agent or broker that does not deal only in authorized types of insurance; or

(b) an insurance policy of an insurance company, agent or broker, or a service in respect of such a policy, that is not of only an authorized type of insurance. (emphasis added)

This poses a potential nuisance for the banks. Using RBC as an example, the overarching corporate website RBC.com provides links to both RBCInsurance.com and RBCRoyalBank.com. Both of these sites, predictably, link back to the RBC.com site.

Under the letter of the new regulation, RBCRoyalBank.com’s link to RBC.com violates the prohibition of providing access “directly or through another web page” to a site that promotes non-authorized insurance.

The Canadian Bankers Association Code of Conduct for Authorized Insurance Activities allows the sale of insurance products tied to credit-related business. Authorized insurance products may be sold in-branch, but these are limited to the life and health sector; great news for the property and casualty lobby, less so for life carriers.

“I can buy an accidental death policy, or a total disability policy, but there’s nothing in there that [is] traditional life insurance, unless it’s linked to an actual credit product. But none of them are P&C,” says Byren Innes, senior vice-president and director of NewLink Group, which provides advice and solutions to the insurance, wealth management and financial services industries.

“The life insurance world has been dealing with the banks on this basis forever.”

Innes emphasizes that the prohibition is against insurance websites that sell more than just authorized products. “So if you had a separate insurance company that only offered those authorized products that would be fine, because those products are allowed to be sold in the branch,” he says.

“All [a bank] would have to do is set up a new insurance company tomorrow, capitalize it with $47, throw the authorized products into it, and say, ‘Fine, now we can put the authorized product company right in the middle of the bank branch, including the website.’”

Tied selling

The primary argument against insurance sales in branch is the fear of tied selling, which Innes says is just that: fear. In fact, the CBA code prohibits tied selling.

“Are you going to get some stupid employee one day saying, ‘I really think you should buy life insurance before we approve this mortgage’? That’s going to happen. You think (non-bank) advisors are going to say stupid things once in their life? I think so,” he says. “Does that mean all advisors are bad? No. Does it mean all bank employees are bad? No.”