OTTAWA - The federal government intends to stop Canada's banks from using the Internet to promote and sell insurance on their websites.
Finance Minister Jim Flaherty said Wednesday he has written the banks telling them to stop marketing their insurance activities on the bank websites, adding that he intends to pass legislation to make the practice illegal in the future.
As expected, the insurance brokerage industry welcomed the move.
However, the association representing the Canadian banking industry said it was shocked by the government's move and said consumers will suffer from it, with less information to make informed choices on financial services.
"We are completely shocked that Mr. Flaherty would want to limit how and where consumers can access information about insurance," said a statement late Wednesday from the Canadian Bankers Association.
"Further, Mr. Flaherty has taken this step without any public consultations with Canadians or the banking industry."
Currently banks can sell insurance through separate subsidiary companies, not from bank branches.
In a recent ruling, however, the Office of the Superintendent of Financial Institutions found that under existing law the policy separation did not extend to websites.
"But in my view it contravenes the policy intent," Flaherty said late Wednesday outside the Commons.
"I wrote the banks telling them this was not consistent with government policy ... and asked the banks to quickly stop the practice."
The minister's action comes as Liberal MP Alexandra Mendes introduced a private members bill with the intent, she said, of levelling the playing field between Canada's large banks and independent insurance companies.
The insurance brokerage industry had complained to the federal government and lobbied MPs about the issue.
Mendes called current legislation outdated, noting that the law still refers to telecommunications and not the Internet.
"The banks have been using outdated regulations to the disadvantage of the independent insurance brokers, companies and agents to advance their own insurance agendas," she said.
Banks like Royal and TD are major insurance providers through subsidiary companies, RBC Insurance and TD Insurance.
But the banks have been pressing Ottawa for years hoping to get the right to sell personal insurance policies from their branches, saying that consumers would benefit from cheaper premiums for life, auto, home and other types of insurance.
The bankers association said the federal Bank Act allows banks to sell insurance through subsidiaries, which use "a variety of permitted channels and for years, one of those channels has been through the Internet."
"The rules here are very clear and have been in place for several years," the group said, adding that it believed the government bowed to intense lobbying from the insurance brokerage sector.
"In the middle of an economic crisis, when others including Canada's banks are working co-operatively with government and all parliamentarians, is no time to surprise Canadians with changes that limit access to basic financial products," it said.
But the Insurance Brokers Association of Canada welcomed Flaherty's clampdown the banks' websites.
"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," association CEO Dan Danyluk said in a statement.
The association said it has long believed that consumers are extremely vulnerable at the point where credit is granted and that Wednesday's policy announcement ensure that consumers are able to make a free choice when buying insurance.
"Today's decision by the minister of finance is a victory for consumers," added Danyluk. "We are pleased that Minister Flaherty listened to his caucus colleagues, the public, and made the right choice for Canadians."
Meanwhile,e a senior official at one of the banks, who asked not to be further identified, said the banks are now fielding questions from employees in their insurance affiliates who are concerned about their jobs.
"There is a lot of anger out there. People are staggered," said the official, who said the banks plan to ask Flaherty to clarify just what the government has in mind and whether it is telling the banks to get out of the online insurance business.
Charles (Chuck) Byrne, executive director of the Insurance Brokers Association of British Columbia, said his industry has been "very aggressive" in attempting to get the finance minister to "clear up the inequity" that existed between the regulatory restrictions on bank branches and the activities they carried out online.
"It was a shock to us to discover that the website activities were not construed as the same as branch activities," he said.
"So this (decision by Flaherty) corrects that. It was not a surprise but certainly it is very gratifying and something we've been working for and trying to get clarified for the sake of the consumer of Canada for quite a while."
The banks were very restricted on what they could do from their physical premises regarding tie-ins with other products, but on their websites "they were seemingly unregulated in the way they could market and push product on the consumer," he said.
