In early October, not long after OSFI's curt ruling, a newbie Liberal MP from Quebec, Alexandra Mendès, tabled a private member's bill-C-457-that proposed restricting the banks from providing their customers with access to insurance products, even on the Internet.
Asked why she decided to wade into the murk of financial services regulation, Mendès gives it up without hesitation. The bill, she says, "started with me being approached by the Insurance Brokers Association and letting me know what was a major problem for them." The IBAC, it seems, visited Mendès on a Hill lobbying day and inquired whether she'd go to bat for them. "They saw it as interference with their domain of business and wanted to correct it," she says, adding that she found the brokers' argument "logical." "Why are we going to allow the possibility of less choice for consumers?"
Private members' bills, of course, tend to die on the vine, but this one served its tactical purpose impressively. Finance Minister Jim Flaherty, apparently feeling the heat, promptly moved to trump the OSFI ruling in a letter to the various stakeholders. Last January, he went further, announcing a review of the regulations governing how banks sell insurance online: "One ought not to try to do indirectly what one cannot do directly," he pointedly told reporters at the time. (The government finally issued the rules in May, prohibiting banks from going offside on any part of their websites.)
The brokers, having left none of this to chance, were ecstatic. "Those are not our words," MacGregor says, referring to Flaherty's comments without wanting to take too much credit for them.
The banks, hobbled as always by their lead-footed approach to advocacy, remain mystified. "We're a little puzzled as to why they would impose inconvenient barriers that will, at the end of the day, impact consumers," says Nancy Hughes Anthony, CEO of the Canadian Bankers Association. "It just presents an inconvenience as far as I'm concerned." Canadians may hate banks, but many would probably agree with her point.
Setting aside the politicking, a meaty policy question remains unanswered. In the age of e-commerce and mobile banking, is there a legitimate reason for preventing banks from selling insurance in their branches and on their websites?
Citing the example of Caisses Desjardins, where Quebeckers can procure bank and insurance products through the same branch, Hughes Anthony dismisses the competition argument as overstated. "The banks still have a very small percentage of this marketplace. There's no persuasive evidence that this is an overwhelming tidal wave. It's a small portion of the insurance market we're talking about." According to their association, the banks have just 2% of the life/health market and less than 10% of the property/casualty market, as measured by premiums.
Those numbers offer little comfort to the brokers, who insist that they themselves represent the last bastion of protection for ordinary consumers from anti-competitive practices like tied-selling and predatory marketing.
And if those arguments don't convince you, the brokers have even more tucked away in their advocacy arsenal. The banks, Orr observes, have credit scores on their customers. If the divisions are erased, that information will allow the banks to cherry-pick the best customers for their own insurance marketing efforts, leaving the brokers to fight over a higher-risk client base. "If the banks get to sell insurance [in the branches]" Orr shrugs, "I'll still have a business, but I'll have clients who won't be able to get insurance."
Justin MacGregor touts an even more apocalyptic scenario. Imagine a natural disaster on the West Coast, he says. An earthquake, say. There's a huge disruption to the economy, and people can't pay back their bank loans. Now consider if those same banks were on the hook for insurance payouts. "If these banks are holding loans on businesses and properties, and are also insuring those properties, isn't that the perfect storm?"
Far-fetched? Maybe, but the financial storm of the fall of 2008 certainly inflicted a lethal double-whammy on many overseas banks that had been working both sides of the street. IBAC's Dan Danyluk points to European regulators' ordering leading financial institutions like ING to divest their insurance divisions-proof, he says, that Canada's regulations aren't quite as vestigial as they may seem.
"Through the whole financial crisis," Orr says, jumping on this point, "who was the one that was looked at as the model regulatory environment to protect the investors in those banks? So we should change what we do now?"
In other words, Canada's insurance brokers are not just providing Canadian consumers with choice and good prices; they're also saving those big nasty banks from their own worst instincts. The status quo never looked so good.