Online bank insurance sales allowed: OSFI

A bank website is not a bank branch, according to the Office of the Superintendent of Financial Institutions (OSFI). Much to the chagrin of some insurance broker organizations, bank websites will continue to be allowed to sell insurance products.

Although ruled on some time ago, it’s come to light that OSFI does not see any violation of the Bank Act when it comes to online insurance sales. According to an OSFI spokesperson, the validity of directing insurance sales online had come under fire from the Insurance Brokers Association of Canada (IBAC), a leading property and casualty broker organization.

IBAC had written to OSFI quite some time ago, raising concerns that banks provide information to consumers about their insurance products [in the branch]. They also expressed concern about the banks doing the same thing, but using their websites, Rod Giles, a spokesperson for OSFI, told Advisor.ca.

OSFI did, in fact, look at the IBAC’s complaint seriously, assessing whether the actions of banks to link to their insurance providers online violated Section 416 of the Bank Act. Section 416 essentially prohibits the sale of insurance products in a bank branch.

“The banks are allowed to sell insurance through their various insurance companies; they are just not allowed to promote or sell insurance in their branches,” Giles says. “For instance, you’ve seen Royal Bank setting up insurance offices right next to its bank branch offices. The act says as long as those two offices are separate and distinct, that’s fine.

Steve Masnyk, manager of public affairs for IBAC says banks are using websites as a “back door” to sell insurance directly to branch consumers.

“We’re now going to ask members of parliament to put pressure on OSFI to enforce the Bank Act, to realize that although it’s not technically written in the wording of the act that a bank branch includes a website, a website is a de facto branch and the same rules should apply,” Masnyk says. “More and more people are using banking through the Internet instead of going directly to the branch. What is the difference between having some rules apply to the physical branch and some rules that apply only online? We find OSFI’s ruling contradictory.”

If OSFI’s doesn’t budge, the IBAC hopes the government can revisit the wording of the Bank Act to possibly include the prohibition of website insurance sales.

“We’ll be looking to have the wording of the Bank Acttightened for sure,” Masnyk says.

The Independent Financial Brokers of Canada (IFB), with a membership comprising a large number of advisors who sell life insurance products, is also concerned about continued online insurance sales by banks. IFB is urging its members to support IBAC’s political advocacy.

“IFB has similarly complained on a number of occasions to bank regulators that the increased use of websites and locating physical insurance locations next to bank branches is contrary to the spirit and intent of the restrictions contained in the Bank Act. In fact, we specifically identified the issue of Internet banking and the sale of insurance through bank websites to the department of finance in August 2006, when we responded to its white paper on Bank Act changes,” the IFB wrote to its members.

The note adds, “IFB will continue to highlight this regulatory gap to financial regulators and politicians. We also ask you to support the actions of the IBAC by writing or contacting your MP to express your concerns.”