News

Banks have notched a rare victory in their fight with Ottawa over selling insurance, setting off a new round in the long-running brawl with the country's powerful insurance broker lobby.

The restrictions that prevent banks from selling or even marketing most types of insurance in their branches do not apply to their websites, the financial regulator ruled in response to a complaint from the Insurance Brokers Association of Canada, which has more than 33,000 members.

That decision means that the barriers the federal government has long maintained around bank sales of insurance could be crumbling in an age when the majority of Canadians are doing financial transactions online.

With the Internet usurping branches as the primary method of banking, the decision makes Ottawa's prohibitions increasingly irrelevant and marks a major win for the banks.

But the brokers are not backing down, and have taken their campaign to MPs in Ottawa, where they're arguing for changes to regulations to stop the banks from making new headway via the Internet.

The current rules allow banks to own insurance subsidiaries, but ban them from selling or promoting products such as life, health, home and auto insurance in their branches.

The insurance brokers, who have successfully fought to have those rules upheld by the federal government over the years, now say that the same restrictions should apply to banks' websites, where they have spotted a number of marketing materials for insurance.

The law was written at a time when doing financial transactions online “was the stuff of science fiction,” Dan Danyluk, the chief executive officer of the Insurance Brokers Association of Canada, said in a letter to the Office of the Superintendent of Financial Institutions.

Copies of correspondence between the brokers association and OSFI, which oversees banks and insurers, have been circulated among members of Parliament.

Banks, hungrier than ever for avenues of growth, are putting significant muscle into their burgeoning insurance businesses right now, trying to push them as far as they can within the limits set out by the government.

Most of the major banks have substantially increased the money they are putting into their insurance businesses.

For instance, to get around the restrictions, Royal Bank of Canada has been building insurance offices right next door to many branches, and Bank of Nova Scotia has been planning on testing that same strategy. Bank of Montreal paid $375-million this year for AIG Life Insurance Co. of Canada.

In the online environment, Royal Bank customers who sign in to the bank's website can click on an insurance icon to be taken to a website where they can begin shopping for insurance.

Neil Skelding, the chief executive officer of RBC Insurance, said yesterday that OSFI has ruled that “websites are not a bank branch and therefore the same rules do not apply. All of our marketing and sales activities for RBC Insurance are based on the fundamental principle of compliance with both the spirit and letter of the Bank Act.”

It was after brokers spotted a number of instances of banks promoting insurance on their websites that Mr. Danyluk brought his complaint to OSFI.

“The Bank Act, when drafted originally, did not distinguish between websites and brick-and-mortar branches, the latter being clearly contemplated by the definition of ‘branch,'” he wrote in a letter to the regulator.

“Subsequent amendments to the Act, we submit, respectfully, have not kept up with the scope and pace of change with respect to the impact of the Internet on the banking sector.”

But OSFI told the brokers that the word “branch” does not apply to a website when it comes to this issue, based on the current laws.

In an interview yesterday, OSFI head Julie Dickson said that “sometimes people don't like the decision that we make, but that decision is based on the words in the statute and what we think they mean.”

In a letter to Mr. Danyluk, she suggested the brokers take up the issue with the Finance department, which would be responsible for any changes to the current policies.

Jack Aubry, a spokesman for the Finance department, declined to comment on the online issue yesterday. “The government is going to maintain the current restrictions limiting insurance marketing by chartered banks,” he said.

But it's the online environment that represents future growth when it comes to selling consumers financial products.

According to the Canadian Bankers Association, customers of the six largest banks performed 445.7 million transactions online last year, a rise of 13.2 per cent from 2007. By comparison, ABM transactions dropped by 3.8 per cent to 954.7 million.

A study conducted for the association last year found that for the first time, the majority of Canadians (53 per cent) were banking online, and more than one-third of Canadians said it is their main method of banking. Less than one-quarter said that branch tellers were their primary means of banking.