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About 45 per cent of the bank’s approximately 2.2 million P&C insurance customers also have a banking relationship with TD, and they tend to be more loyal and profitable.AARON HARRIS/Reuters

The challenging business of insuring homes and cars just got lonelier for Toronto-Dominion Bank.

TD will be the last of the major lenders still underwriting property and casualty (P&C) policies, now that Royal Bank of Canada has struck a $582-million deal with Aviva Canada to part ways with its home and auto insurance business. National Bank of Canada is still technically in the game, but it doesn't crack the top-20 providers by market share. TD is in the top five.

As RBC and Aviva revealed their deal last week, eyes drifted toward the country's largest P&C insurer, Intact Financial Corp., which has said it will pursue acquisitions in the coming years. And then eyes fell on TD Insurance, which has been defended by executives as a core business, even as it struggled with the higher costs of some automobile claims and catastrophic weather events in recent years.

"We believe that this transaction is interesting because of what it means for TD," Meny Grauman, an analyst at Cormark Securities Inc., said in a note, pointing to long-standing speculation that if TD were selling, Intact could be the buyer.

He called attention to the 15-year distribution agreement that RBC struck to keep marketing insurance under its own brand. "Based on recent TD management commentary, [this] would likely be a key feature of any sale." He estimated TD Insurance to be worth about $2.7-billion.

Insurance is a tricky business for the banks, since regulations stop them from selling polices in their branches. But many insurance products are compatible with other bank initiatives. If you're taking out a mortgage, for example, you might also need some home insurance.

TD says its customer relationships are a huge part of what keeps it in the P&C insurance business. About 45 per cent of the bank's approximately 2.2 million P&C insurance customers also have a banking relationship with TD, and they tend to be more loyal and profitable. "This provides an attractive opportunity to cross-sell TD banking products to our insurance customers," Kenn Lalonde, chief executive officer of TD Insurance, said at the bank's Canadian retail investor day in October.

But there are also major challenges. In 2013, TD took hundreds of millions of dollars in charges related to severe weather caused by flooding in Alberta, and it set aside hundreds of millions more to account for higher bodily injury automobile claims and fraud in Ontario.

"When you've gone through an event like that, you look at all aspects of the company and you learn from the experience," Mr. Lalonde said. "We've modified our pricing where we were off-market, and we're more sophisticated in our approach to underwriting and risk."

Meanwhile, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and, soon, RBC take the approach of using their brand name to sell insurance without some of that risk – the fine print shows actual underwriting is done by other insurance companies.

The flooding also did damage to the reputations of RBC and TD – which consistently rank among the country's strongest corporate brands – as some customers retaliated when claims were denied. They put up lawn signs that attacked the banks and some other insurers for initially refusing to pay.

That happened because while many homeowners had sewer backup coverage, practically no one had coverage for overland flooding, which seemed to be the cause of many damaged properties. Some insurance providers paid for repairs even when they weren't obligated to. As severe weather disasters are becoming increasingly frequent and severe over time, these issues are bound to cause more pain.

Claims can make or break a years-long relationship with a customer. "If you get it wrong, you've simply lost the customer; and even if you mostly get it right, the propensity of the customer to shop increases dramatically," Mr. Lalonde said.

TD has since retooled its approach to claims management in the wake of a natural disaster, including a mobile response unit that will start claims, issue cheques and hand out supplies to displaced families.

Analysts have asked whether P&C insurance might be more trouble than it's worth, but TD's executives at many levels have insisted that the businesses isn't for sale.

RBC's deal with Aviva could again "stoke speculation that TD would also consider selling its P&C insurance business," Doug Young, an analyst at Desjardins Securities, said in a note. But at a lunch event he hosted with TD chief executive officer Bharat Masrani in 2015, "he stated the P&C business is a core part of the franchise." And as of Friday, nothing had changed. "We remain committed to this business," TD said in a statement.

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