08 November 2006

Think Tank: Let Banks Sell Insurance

Duncan Mavin, Financial Post, 8 November 2006

An influential policy think-tank says banks should be free to sell insurance from their branches, stirring up what was thought to be a dead issue by some in Canada's financial services industry.

The insurance industry and the banking sector fought over the matter for much of the first six months of this year, with top executives on both sides weighing in.

The arguments seemed to have been put to rest when the government released a White Paper in June indicating it has no plans to make the regulatory changes the banks wanted.

But a report from the C.D. Howe Institute that calls for an end to "a prohibitionist stance toward the sale of insurance by banks" is threatening to reignite the debate.

"It's an important public policy question," said Finn Poschmann, director of research for the C.D. Howe Institute.

Regarding the decision to release the report after Ottawa seems to have quashed the banks' hopes, Mr. Poschmann said the arguments "are for the government and the industry to sort through. We just do our work."

But an executive from one of Canada's largest life insurance companies dismissed the C.D. Howe report as containing "nothing new."

"There was a debate and it seems the government has made it up its mind. The government is not pursuing change and we think that's the right policy decision," he said.

The C.D. Howe paper was initially prepared in draft format several months ago and has been under review since then.

The study was written by former top insurance lobbyist Mark Daniels last May and a copy was obtained by the Financial Post at the height of the debate over the restrictions the banks face.

The report broadly supports the position of the banks, for whom access to direct sales of insurance has become a sore point.

The banks can sell some insurance products but are not permitted to market their insurance services directly to customers or to sell insurance from their branches.

Earlier this year, the banks stepped up their efforts to have the restrictions lifted, lobbying Ottawa aggressively for changes they hoped would be pushed through as part of a periodic review of the Bank Act.

But the Conservative government stuck to a stated policy not to enact such changes included in its election platform last year.

Insurance industry executives welcomed that decision, saying the banks' vast branch networks and the amount of information they hold on customers would give them a huge competitive advantage on insurance sales.

After the final version of the C.D. Howe paper was released, some in the financial services sector said the supported renewed discussion.

"We're not surprised the issue keeps coming back because we think it would be good public policy to increase availability of insurance products," said Art Chamberlain, a spokesperson for the Credit Union Central of Ontario.

Credit Unions, like banks, are currently unable to provide insurance services directly to their customers.

"We believe that it would be better for consumers to have insurance sold by a wider range of financial services companies," Mr. Chamberlain said.