08 November 2005

Cdn Banks Push for Insurance Business

Ottawa urged to ease restrictions to allow offer of policies to less-affluent customers

The Globe and Mail, Sinclair Stewart & Steven Chase, 8 November 2005

Toronto and Ottawa -- Canada's big banks, which for years have been prevented from marketing life insurance through their branches, are urging Ottawa to ease that restriction by allowing them to target less-affluent customers -- a group they claim is being underserved.

Officials from the banking industry have been meeting with the Department of Finance in recent weeks and are making a final push on the issue before the federal government releases its white paper on financial services. That paper will describe how Ottawa intends to rewrite legislation for the sector, and is expected to be published at the end of this month.

"We want to have access so branches could refer clients and use customer information to see what they need," said the head of one major bank, who described the lobbying approach as an attempt to stake out a middle ground with Ottawa. "We're saying to the government, 'why don't you open this up and let us into this?' "

A senior government official said Ottawa may still change its tack depending on the response to the white paper. "It puts out a direction to see what the reaction is. It's sort of like flying a flag," the official said.

The Canadian Bankers Association, an industry group, submitted a report to Ottawa in June insisting that banks should be allowed to provide customers with information on life insurance products through their branches, or refer them directly to their insurance operations. The banks also want to be able to mine their extensive databases to provide customers with insurance products tailored to their financial situation.

The issue is a sensitive one, however, and bankers are fearful of inciting the wrath of independent insurance brokers, a potent lobby group that carries considerable political heft. Both the banks and their rivals in the insurance broker trade have been furiously lobbying MPs in recent months to persuade them of the merits of their positions.

As a result, banking executives say the industry is focusing its recent discussions with Ottawa on the need to cater to lower-income Canadians, who they claim are poorly served by the current life insurance regime.

One executive said the idea is not to compete directly with life insurers, but to market plain, commodity-like life insurance products to customers who cannot afford policies of more than $100,000.

The average life insurance policy size has almost doubled from $105,000 in 1995 to $198,000 in 2003, making it an expensive purchase for many families, the CBA asserts.

Figures compiled by the banks show that only 60 per cent of families with a gross income of $40,000 or less own life insurance.

For those making above $80,000 a year, this number climbs to 81 per cent.

"The banks are well positioned to serve mid- and lower-income Canadians better than they're being served," said Caroline Hubberstey, a spokeswoman for the CBA.

The CBA is set to release the results of a new poll in a couple of weeks, just in advance of the white paper, showing that Canadians want more options in seeking out insurance.

Eighty-seven per cent of respondents said they would not feel obligated to purchase life insurance at their bank branch if this is where they had picked up marketing material.

If banks were able to mine their wealth of customer information to market specific insurance products, they would have to first get permission from customers to send them offers.

Sources say the banks were at an impasse several months ago as to how to lobby Ottawa over proposed financial services reforms.

Royal Bank of Canada, the country's biggest bank, and the one with the most significant insurance operations, wanted to ask that banks be allowed to sell life insurance products directly through their branches.

However, some of the other banks thought that was demanding too much, and the CBA agreed to lobby on a middle ground.

RBC made its own submission, calling on the government to let the banks begin selling directly.

"All banks agree that consumers want and need greater choice," said RBC spokesman David Moorcroft. "The only issue is how much choice we believe the government is prepared to give them right now."

But with a possible election looming, some banks are growing pessimistic that anything will change on the insurance file in the near future, and that this sensitive issue -- like mergers and income trusts -- may be pushed to the back burner for political reasons.

The white paper is still slated to be released in the next few weeks, and will then be sent to the House of Commons finance committee and the Senate banking committee for review.

The Finance Department is drawing up new legislation, reflecting the white paper, to be introduced in Parliament some time early in 2006.

Parliament must pass new financial sector legislation before the existing acts expire in October, 2006.