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Legislation fails to satisfy insurance, banking officials.

Legislation fails to satisfy insurance, banking officials

The federal government is expected to present the first of its long-awaited financial institutions legislation reforms for third reading later this month.

Bill C-83, the Trust and Loan Companies Act, was approved by the House of Commons finance committee earlier this spring. It increases the powers of trust companies in the realm of consumer and commercial lending, but blocks them from forcing customers to have a minimum account balance before issuing a loan.

While the increased powers do not have a direct impact on the insurance industry, the legislation could affect that business sector.

"The act is considered "boiler-plate" legislation, because it affects all three areas (trusts, banks and insurance companies)," said James Wright, director of media relations for the Canadian Life and Health Insurance Association (CLHIA).

Wright said the bill gives an indication of what lies ahead when hearings begin for the second, third and fourth pieces of the financial reform puzzle - the Bank Act, the Co-operatives Act and the Insurance industry's perspective the indication is not positive.

During committee hearings on the Trust and Loan Companies Act, the banking industry was attempting to secure the right to sell insurance policies through branch offices. The finance committee, seeking to placate lobbyists from both the insurance industry and the banking industry, amended the Trust and Loan Companies Act so that banks can own insurance companies, but cannot sell policies.

Currently, a number of banks have business relationships with insurance companies to provide policies as a form of mortgage protection.

However, by seeking a happy compromise, the finance committee has apparently pleased no one.

"It's hard to gauge the effects (of the move) or understand why they (banks) would want to own an insurance company," said Wright. "What's the advantage for them?"

Wright stated that the legislation would allow banks to indirectly sell insurance through insurance companies that they own.

"Many members of our industry are worried that retailing of the product (insurance) will follow," he said.

Lynn Buckle, vice-president of the financial institutions division of the Canadian Bankers' Association (CBA), stated that it doesn't make sense to allow a bank to purchase an insurance company, but not allow it to sell insurance through an existing network of bank branches.

"We'd have to develop an entirely new distribution network to handle the product. The branch system is one area where we can save the public money by using our network of more than 7,000 branches," said Buckle.

"It's like telling General Motors |sure you can make cars, but you can't sell them through your dealers." What we're left with is the second-best part of the plan."

During hearings on Bill C-83, the bankers association claimed that allowing banks to enter the insurance industry would increase competition and reduce prices.

However, Wright said the industry is already competitive and stable.

"I can't see why they (the government) would want to muck around with it," he said.

With the finance committee giving its blessing to Bill C-83, Wright and Buckle say all indications are that the bill will become law by the end of the year.

Wright added that the balance of the reforms should occur more quickly than did C-83, since "most of the contentious issues have already been dealt with."

He said the insurance association will be using the hearings on the other bills to get the federal government to make the ban on retailing insurance through bank branches as stringent as possible.

On the other side of the coin, Buckle said her association will be lobbying the committee to rescind the ban.

"There's an old saying, |It ain't over until it's over,' and it's not" she pointed out.
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Title Annotation:Bill C-83, Trust and Loan Companies Act
Publication:Northern Ontario Business
Date:May 1, 1991
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