Tuesday, May 02, 2006

Cdn Banks Push to Market Insurance Rather Than Merge

The Bank Act comes up for review later this year, and the players know they’re better off pursuing goals that are more attainable

Investment Executive, Rudy Mezzetta, 2 May 2006

The review of the federal Bank Act will take place in October, and Canada’s chartered banks are redoubling their efforts to win the right to market insurance through their extensive network of branches. They admit that the question of mergers is now off the radar screen.

“We now appear to be getting some clarity,” Ed Clark, president and CEO of TD Bank Financial Group, told that bank’s annual general meeting on March 30. “The federal government has indicated its five priorities, and Big Bank mergers is not one of them.”

Although noting that TD “would definitely be at the table” if mergers were given the go-ahead, Clark said the banking sector should focus its efforts on persuading Ottawa to give it the right to provide insurance information and referrals in-branch and to send customers insurance information in a targeted manner.

As it stands, banks are not allowed to sell insurance in their branches, except for travel or credit-linked insurance, nor are they allowed to market insurance in branches nor refer customers to an insurance broker. And although banks are allowed to market insurance through the mail or online, they are restricted from targeting any particular subset of clients. They can also sell insurance via an insurance subsidiary or through a dual-licensed broker at a securities subsidiary.

In anticipation of the mandatory Bank Act review, the Canadian Bankers Association has been pressing the government to remove the restrictions on marketing insurance at the branch level, but has stopped short of asking for the right to sell directly from branches. The CBA adds that, although it hopes mergers eventually will be allowed, the issue is not at the top of its agenda at the moment. “It’s the insurance side we’re focusing on,” says CBA spokesperson Maura Drew-Lytle.

The insurance sector, meanwhile, has vigorously argued against any erosion of the current restrictions on the banks concerning insurance. Allowing banks to market and sell insurance directly in their branches could lead to so-called “tied selling” or coercive selling, the insurance industry says, and would raise privacy issues as the banks become both insurer and lender to clients. The banking sector, in turn, argues that regulations are already in place to prevent tied selling and to protect privacy.

In February, the CBA and Advocis, which represents Canadian financial advisors, released separate surveys about Canadians’ attitudes on banking and insurance. The studies seem to contradict each other. The CBA survey said more than 90% of Canadians surveyed wanted banks to be able to offer insurance information in branches, while Advocis’s survey showed that 78% of consumers are in favour of keeping current restrictions on banks and insurance.

Of the six large banks, Royal Bank of Canada has been the most aggressive in advocating the removal of restrictions against banks. In recent speeches, senior RBC executives have argued that banks should not only have the right to market insurance at the branch level, they should also have the right to sell it.

“That’s RBC’s position,“ says Drew-Lytle. “It’s similar to that of the CBA, but it goes a step further. RBC essentially agrees with our position.”

RBC says its size plays a role. “Given our significant presence in insurance, you might expect us to be the loudest,” says Jim Westlake, group head of Canadian personal and business clients, for RBC. “We think [removal of all restrictions] will happen eventually, although it should happen now. The CBA’s position is one everyone could agree on. This is what should happen this time around.”

Westlake says RBC doesn’t connect the merger and insurance issues. “We think public policy should allow consolidation,” he says. “But until the government is ready to deal with it, we’d just as soon leave it. We understand this is probably not the best time.”

RBC has opened several RBC Insurance branches next door to its bank branches, raising the question of whether it is trying to prod the government into making a decision — something Westlake denies.

“We don’t try to poke a stick at government,” he says, adding the branches were opened where RBC felt it made good business sense. “If we knew the rules would never change, we would still go ahead [and open the insurance branches].”

Westlake says RBC has looked for opportunities to open RBC Insurance branches where existing bank branches were being refurbished or a new branch was opening. He does acknowledge, however, that RBC is being careful about opening insurance outlets. “Until the Bank Act review is complete, we don’t want to open a ton of them,” he says.

RBC Insurance is the dominant player among the bank-owned insurers, boasting about five million customers in North America. It offers insurance for life, health (including disability, critical illness and long-term care), travel, home, auto, reinsurance and creditor insurance. Taking into account its parent’s business in Canada, the U.S. and in global reinsurance, insurance represents about $3 billion of its revenue.

TD is also a strong player in the insurance sector. It has two main insurance arms: TD Insurance, through which it sells life and health insurance, including critical illness and direct life, to 1.8 million retail customers; and TD Meloche Monnex, through which it primarily offers home and auto insurance.

The other Big Six banks have not been as vocal as RBC and TD in advocating the loosening of insurance regulations in the Bank Act, but all support the CBA’s position.

National Bank of Canada divides its insurance arm into three main businesses: a life insurance subsidiary, which is among the biggest in Quebec; a general insurance subsidiary, through which it offers home and auto insurance; and an insurance and investment brokerage that offers in-house and third-party products.

CIBC offers travel insurance, as well as mortgage, life and credit-related insurance. Bank of Montreal offers term life, mortgage life, accident and critical illness, and credit-related and travel insurance, while Bank of Nova Scotia offers travel, accident and credit-related insurance.