Banks and insurance sector at odds over proposed legislation.

Banks and insurance sector at odds over proposed legislation

It has been talked about for years, but proposed federal legislation to allow banks to enter the insurance field has been delayed.

The issue, part of an overall reform of regulations dealing with financial institutions, is expected to come up once again during this fall's session of the House of Commons.

And again, there are fighting words from both sides on the merits and drawbacks of banks selling insurance.

COERCIVE SELLING

The insurance sector is very critical of the idea.

Pat Burns, out-going chairman of the Canadian Life and Health Insurance Association (CLHIA), said banks dealing in insurance potentially could practice "coercive selling."

Burns said a bank in the process of reviewing a loan application could have the advantage of intentionally or unintentionally intimidating the applicant into buying insurance.

"There's a little extra pressure there," he said.

Burns also worries that, if a small business operator seeks a line of credit from a bank, the bank could inform him that it also offers insurance. Although there would be no direct sales pressure, he said the small business operator could believe it would be to his advantage to buy his insurance at the bank.

In addition, Burns noted that banks have unfair access to private financial information which could indicate if a person or business has adequate savings to buy insurance.

Burns cites the following incident as justification for his concerns.

One of his employees was arranging a line of credit at a bank which suggested the employee put some of this RRSP holdings in the institution.

"I would call that coercive selling," said Burns, who is president of Confederation Life Insurance Co. of Toronto.

He also noted that it is common in Britain for people to pay their insurance premiums by pre-authorized cheques at a bank. However, once a bank sees the payments, it can advise the client to bring in the policy to compare it to what the bank offers.

Such examples are actually happening, he said. "It's not hearsay."

Burns further argues that the public won't be well served by bank tellers who sell insurance as a side business.

"I don't think people should buy life insurance from someone who is not well trained (in insurance)," he said.

Noting that proposed changes to the legislation have been looked at for about five years, Burns said, "I would say there will be no legislation on this for three years."

He believes the government has other priorities.

"I don't think the government wants to get in the middle of a fight," he added.

Burns said that if banks are allowed to sell insurance, they might buy existing firms, or start up their own companies.

BANKS DISAGREE

The opposite view comes from the Canadian Bankers' Association.

"We would still very much advocate banks be allowed to retail insurance," said Joanne De Laurentiis, vice-president and director of public affairs with the Toronto-based organization.

While she expects legislation to be introduced in the fall, she doesn't know what it will contain. "We haven't heard anything is imminent."

De Laurentiis said that the arguments against banks entering the insurance field are unsound.

In fact, she noted that a study by an independent consumers group concluded that the public would benefit because banks would not use agents or pay sales commissions.

Banks are confident they would be able to deliver the product at a better price, she said, noting that there are more than 7,000 bank branches across the country.

Non-complicated policies could be sold over the counter, she explained.

While she recognized that the insurance industry is concerned it would lose customers to banks which offer better rates, she said, "We think the consumers' interest should be considered here."

The actual loss of business would depend on consumers, said De Laurentiis in a telephone interview from Toronto.

She also said the objection over coercive selling is really a "red herring."

De Laurentiis explained that banks are retail operations which have the primary function of lending money, so it would be illogical to risk losing customers.

"It's not good business practice," she said. "We can't see it would happen."

However, she and Burns do agree that legislative changes are taking too long.

"It just keeps getting delayed," she said.

De Laurentiis said other issues keep crowding the changes out of the government's agenda, noting that recently the issue has been national unity.

COMMITTEE AWAITS

Basil Zafiriou, research director with the House of Commons finance committee, said legislation is expected sometime within the next few months, since the Bank Act will soon expire.

"But at this time there is nothing on the table," Zafiriou said.

In 1986 a government white paper recommended that banks be permitted to own insurance companies, but not be allowed to sell insurance directly to consumers.

"As far as I know, that remains government policy," said Zafiriou, who is on loan to the finance committee from his position as research analyst with the library of Parliament.

In a telephone interview from Ottawa, he said it is hard to know what could be presented in the way of new legislation.

The changes would be part of legislative reforms dealing with all financial institutions, including trust companies, insurance companies and banks.

There would be a lot of overlap in the legislation, and insurance and trust companies could receive extra powers if some are lost by banks, he said.

It may be that insurance companies could be permitted to own small banks, he speculated.

Whatever happens, Zafiriou said it appears likely that one side or the other will fight any changes.