Since last summer, the barrier between the banking industry and the assurance sector has seemed to be crumbling. After the Office of the Superintendent of Financial Institutions ruled in July 2009 that a bank website is not regarded as a bank branch, it opened the way for banks to begin promoting their insurance products on their websites.
Unlike Europe, where Bancassurance is standard in most countries, Canada has always insisted on a strict demarcation between the banks and the life assurers. Even banks which own life assurers are only allowed to provide links from their corporate web-pages to the subsidiaries. They are not permitted to promote the products actively. This has left Canada as the only major developed country that has not deregulated.
Uniquely, in the western world, Canadian banks cannot leverage their client database to cross-sell insurance products. The Life Assurers have lobbied against deregulation strongly, saying that the banks would be in a position to cherry-pick clients, given their knowledge of clients’ credit and other information.
I can see their point, although the option of buying a bank does not seem to have occurred to the Life Assurers. The result of the ban on the banks is that the less well-off sectors of society and those in very rural areas not served by brokers are not well serviced for insurance products. The banks ability to be a low-cost assurance provider as in the US and most of Europe is being ignored and it is the clients who suffer.
It has to be said that the Canadians themselves are wary of the removal of restrictions, with a survey showing 78% of the population do not support expanding the banks powers and that “more than six out of ten Canadians believe that removing protections will lead to less choice”.
It is on the back of this public distrust of the banking sector that Finance Minister Jim Flaherty has issued a new directive splitting insurance products into ‘authorised’, (credit and travel-related insurance) and ‘non-authorised’ (life, property and casualty insurance). The banks will be restricted to selling authorised insurance products only.
It seems Canada is determined to prevent the banking sector from following other countries by going into the insurance sector. And before they start complaining, it would seem that the Canadian banks will need to do some work to improve their public image. With the current level of public wariness about their industry and about deregulation in general, the banks will struggle to convince the government that they have something to offer in the insurance sector.