Stop Web-based Insurance Sales: Flaherty to Banks

Terri Goveia | October 8, 2009

The federal government is set to stop banks from using their banking-related websites to sell insurance,  Finance Minister Jim Flaherty has announced.

Upcoming government policy will apply Bank Act regulations to bank’s technology-based businesses as well as their bricks and mortar branches, Flaherty told both the Canadian Banking Association and the Insurance Brokers Association of Canada (IBAC) in separate letters October 7. “I would expect your institutions to initiate steps quickly to adapt the business practices of banks to meet this policy objective, the letter to CBA president Nancy Hughes-Anthony states.

“The regulations reflect the government’s policy intent that banks should separate insurance business from banking business,” Flaherty wrote to both groups, adding that the government will “adopt specific policy measures by adapting our policy to reflect technological advances.”

The federal government’s announcement coincides with the introduction of a private member’s bill aimed at banks’ insurance sales practices. That bill, introduced by Liberal MP Alexandra Mendes (Brossard-La Prairie), targets bank marketing and promotion practices.

New policy on this front represents a “victory” for insurance brokers in Canada, according to Dan Danyluk, CEO of the Insurance Brokers Association of Canada (IBAC). “Insurance brokers from across the country applaud the government and Minister Flaherty for ensuring that rules governing bank branches will be the same as bank conduct on the internet,” Danyluk, said in an October 7 statement, noting that the association “has the long held policy stance that consumers are extremely vulnerable at the point where credit is granted.”

“Today’s decision ensures that consumers are able to make a free choice when buying insurance products,” he said.

However, the Canadian Banking Association says the government’s actions contradict a recent Office of the Superintendent of Financial Institutions (OSFI) on the issue, and “would limit basic access to basic financial products.”

The Internet has been a long-standing channel for bank subsidiaries to sell insurance, the association notes in a statement responding to the Minister’s announcement, noting, “We heard no concerns from the government when OSFI issued its ruling.”