Another bank is effectively thumbing its nose at Ottawa's restrictions on the sale of insurance, a sign that the big banks intend to muscle their way into becoming a major force in the insurance business.
Bank of Nova Scotia has unveiled its first insurance office, imitating Royal Bank of Canada's highly successful strategy of building insurance offices right next door to bank branches.
The strategy allows the banks to circumvent federal laws that prevent them from using their extensive branch networks to market most types of insurance. The Conservatives campaigned on a promise to maintain the restrictions, and an official in the Finance Department recently said the government intends to stick to that.
I'm very disappointed that Scotiabank's following the lead of other banks to essentially laugh in the face of Parliament.— Dan Danyluk, chief executive officer Insurance Brokers Association of Canada
"I think at some point it's inevitable that broader financial institutions will be involved in insurance in a broader way," Chris Hodgson, Scotiabank's head of Canadian banking, said in an interview yesterday. "It's coming, it's just a question of timing."
The quest for growth and the desire to become one-stop shops for the baby boomers' retirement needs has spurred the banks to push further into the insurance arena, and begin pushing the envelope with Ottawa. The federal Bank Act says a bank can own an insurance subsidiary, and an insurance company can own a banking subsidiary, but banks cannot market most kinds of insurance in their branches.
Bank of Nova Scotia— Ryan Carter/THE GLOBE AND MAIL
The banking industry's strongest opponent in this respect is the Insurance Brokers Association of Canada.
"I'm very disappointed that Scotiabank's following the lead of other banks to essentially laugh in the face of Parliament," Dan Danyluk, chief executive officer of the association, said yesterday. "At the very least, [banks] are breaking the intent of the law."
Scotiabank will be marketing some products made by Sun Life Financial in its insurance office, but Sun Life does not want to see the current rules changed. "We strongly believe the current rules are good public policy," spokesman Michel Leduc said yesterday.
RBC now has dozens of insurance offices butting right next to its branches, and has said it intends to build roughly 100. At this point, Scotiabank has only one location, in a Toronto suburb; it intends to see the results that one produces before building more.
Scotiabank and its competitors are also ramping up their online insurance businesses, taking advantage of looser rules that apply to them on the Internet. The brokers' association recently lost an effort to have Canada's banking regulator deem banks' websites to be, in essence, branches.
The Internet is "an area where, from a regulatory perspective, we're allowed to do more, so I think you're going to see all of the banks that are active in this space ramp that up," Mr. Hodgson said.
The federal restrictions also mean banks cannot share customer data with their insurance businesses. And they can't send home insurance brochures to their mortgage customers.
"We would like to see a more level playing field," Mr. Hodgson said.
