RBC asks for expanded insurance sales in branches

(July 20, 2005) It’s no secret that Canada’s banks want to sell more insurance products in their branches. Now, RBC, the country’s largest bank, has put that request in writing, asking the federal government to include the controversial change in the Bank Act — scheduled for review in 2006.

“Removing the constraints on the ability of consumers to obtain insurance services, products and advice from banks would constitute the single most important initiative that the government could undertake in this review to promote the interests of Canadians,” RBC says in a submission to the department of finance.

RBC is the first of the big banks to make such a direct request. Although it shouldn’t come as a surprise, since last month, RBC set up a retail insurance office directly next door to a bank branch.

Prior to that, the Canadian Bankers Association released a report arguing that bank branches should be allowed to offer insurance information in branches and that staffers be permitted to refer clients to an insurance professional working outside the branch. The CBA, however, did not ask for insurance sales in branches, though many industry observers believe that is the ultimate “end game” for the banks.

In outlining its case for selling insurance in branches, RBC uses the example of a consumer who sees an advertisement promoting a life insurance product offered by a bank subsidiary. The consumer goes to a bank branch for more information, but can’t find it, since the banks aren’t allowed to offer life insurance pamphlets or brochures.

The consumer then tries talking to a bank employee, but is told that federal rules prohibit the staffer from providing specific information on life insurance or referring the consumer to an RBC insurance branch, even if the office is located next door.

“Canadian consumers have expressed frustration, confusion and amazement that the government would impose such obstacles on their access to financial services and advice,” RBC claims.

In an interview earlier this month, RBC Insurance president Neil Skelding said independent life agents shouldn’t view the banks as a threat, since the independent channel deals with a “middle-to-upper-middle market and this is more aimed at the mass market.”

RBC repeats that argument in its submission, stating that considering the average investment portfolio size in Canada is only $30,000, “lower-income Canadians may find themselves underserved in terms of their insurance needs.”

Critics, including Advocis president Steve Howard, have noted that the banks need to deal with a number of important issues before diving head first into insurance, including privacy and tied-selling.

RBC’s response to those concerns? “These practices are against the law. Confidential client information is protected in legislation and coercive tied selling is not permitted.”

“We take these issues seriously and have put in place internal codes and training to ensure that the interests of our clients are protected. It is also worth noting that the representatives of the insurance industry who most frequently raise these concerns are not in fact subject to the same comprehensive federal rules coercive tied selling as banks.”

RBC also says increased insurance competition has led to lower distribution costs and more competitive prices in other countries, such as Australia and Britain.

“Expanded insurance powers could enhance the viability of bank branches [and] go a long way to ensuring that network access can be maintained throughout Canada, including rural communities,” RBC adds.

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