Insurers step up rhetoric in banking turf war

There's an easy solution to insurance brokers complaint that banks aren't playing fair. Let banks sell insurance and let insurance companies sell banking services, Michael Hlinka writes.

I’m a stickler for following the rules. This is true whether we’re talking about hockey, or business. 

Because — as we’ve seen in the recent NHL playoffs — if you don’t play by the rules, chaos can ensue.  So when I heard that Canada’s insurance brokers have lodged a complaint with our banking regulator, I took note. 

Here’s their beef:  The Federal Bank Act prohibits banks from selling most types of insurance in their branches.  The rules, however, do allow them to set up separate offices to market insurance products. 

You may have noticed that side-by-side, you’ll sometimes see a bank branch and an insurance office under the same corporate banner. These rules were created two decades ago when it looked like the banks were on the brink of swallowing up all of Canada’s financial services.  

But the logic of this separation finds its roots in the Great Depression.  After the great collapse in the early 1930’s, public policy makers believed that the national interest would be served if the four basic financial services functions: banking, insurance, trust services and investments were separated. 

The intent was for Canadians to, for example, do their banking with one for-profit company, get their insurance through another, and do their investing with a third. This way, people wouldn’t have all their eggs in one basket. It made sense at the time. 

But what then started happening, gradually, was that the banks took over trust services.  Then they bought out the investment dealers.  And it looked like insurance was going to be next. 

Let banks and insurers compete openly, Michael Hlinka says. (iStock)

A line in the sand was drawn.  Why?  You could make the public interest argument.  That is, if you were taking out your mortgage at your local bank, then you could be pressured into getting your insurance there, perhaps at uncompetitive prices. 

That’s one possibility. On the other hand, it may just have been that the insurance lobby — with its thousands of brokers across Canada — are just better organized and more vocal than the trust companies and stock brokers were.

What the insurance brokers are complaining about, very specifically, is that if you visit the websites of the Royal Bank and Bank of Montreal, you can click through and find promotional materials for their car insurance, life insurance, and bank insurance. 

Websites breach rules

And I’ll at least give the complainants the benefit of the doubt.  If this doesn’t violate the letter of the regulations, it sure seems to undermine their spirit. 

But there’s a really easy way to deal with this issue. Let banks sell insurance. Let insurance companies sell banking services. 

Let the market decide who wins and who loses. Let’s make the rules as sensible as possible, then enforce them as fully as possible.