TORONTO (Reuters) - Canada will prohibit major banks from marketing insurance products on their websites, marking a major victory for big insurers in a long-running battle with the banking industry.
Canadian Finance Minister Jim Flaherty told Canada’s Business News Network (BNN) that rule changes will come in with the next budget implementation bill in early 2010, effectively reversing a decision in favor of the banks earlier this year from Canada’s financial regulator.
“I’ve made it clear now that we will change the rules so that the marketing of insurance via web sites, virtual bank branches, will not be permitted,” Flaherty said.
While Canada’s Bank Act prohibits banks selling insurance through branches -- the subject of a decades-long political battle with insurance brokers -- big banks have slowly expanded into the C$115 billion ($108 billion) domestic insurance market in a bid to increase earnings and market share.
Hungry for growth, the top banks have beefed up insurance arms, pushing sales on the Internet, in stand-alone insurance branches or through insurance subsidiaries, carefully skirting government regulations meant to keep insurance and banking separate.
As recently as June, bankers celebrated a ruling by the Office of the Superintendent of Financial Institutions (OSFI), saying banks could promote insurance on their websites.
“We are completely shocked that Mr. Flaherty would want to limit how and where consumers can access information about insurance,” the Canadian Bankers Association said in a statement after Flaherty announced the rule changes.
All of Canada’s major banks -- Royal Bank of Canada, Toronto Dominion Bank, Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce -- offer some variety of insurance and several are aggressively trying to grow the business.
All of the banks declined independent comment about Flaherty’s decision, communicated to the banks in a letter from the minister.
“Today I wrote to the banks telling them that in my view this was not consistent with the government policy, which is that insurance activities are not generally to be carried on in bank branches, and that we would extend that policy intent to websites as well,” Flaherty told reporters ahead of the BNN interview.
“I asked the banks to quickly stop the practice, so that they would be compliant with the government’s policy intent.”
The Bank Act prohibits banks from directly selling insurance in branches, but the OSFI ruled in June that “a bank website is not a bank branch” and therefore a bank could promote insurance products on its website.
Flaherty said he disagreed with the ruling, seen at the time as a blow to the thousands of insurance brokers across Canada who are considered well-connected with federal legislators in Ottawa.
“The background to this is that the Superintendent of Financial Institutions made a ruling that according to the present law, the use of the websites to market insurance did not contravene the present law, but in our view it contravenes the policy intent of separating those two functions in bank branches,” Flaherty said.
“Since the early 1990s, we have had the separation that banks do banking in bank branches and don’t do insurance work in bank branches. That has been affected technologically by the use of websites. Some banks have been using their websites, their branch websites, with respect to insurance activities.”
Typically, the banks have an insurance link on the front page of their domestic websites.
A finance department spokesman suggested in an e-mail that the insurance arms of the banks would still be able to use the Internet if they kept the information separate from the main bank website.
“We’re simply applying the same rules to web sites that we apply to branches. They can operate separate web sites,” the e-mail said.
With additional reporting by Randall Palmer in Ottawa; Editing by Jeffrey Hodgson