TORONTO — Ottawa is drafting legislation to stop Canadian banks from using their websites to promote insurance that can’t be sold through their regular branch offices.
Finance Minister Jim Flaherty said Thursday he is moving forward with legislation that would make it illegal for federally regulated Canadian banks and trust companies to use their websites to promote so-called non-authorized insurance products, which include life, property and casualty insurance.
Flaherty wrote to stakeholders Wednesday indicating he is recommending amendments to the Bank Act that would ban them from promoting those types of insurance online, after his requests asking them to stop the practice in October were ignored by some banks.
Ottawa intends “to adopt specific policy measures to ensure that banks (including trust and loan companies) do not do indirectly what they are not allowed to do directly with respect to their insurance business activities,” Flaherty wrote in separate letters to the heads of Canada’s banking, insurance and trust and loan associations.
“These measures were made necessary by evolving use of technology by banks,” he said.
It is the government’s job is to ensure there is a level playing field for the distribution of insurance sales in Canada, Flaherty said Thursday on a conference call from Peru.
“(The new regulations) are consistent with the principle that they are not to sell general insurance products in their bank branches,” he said.
Certain types of insurance related to credit and travel have been authorized for sale in bank branches, but banks are prohibited from advertising the non-authorized insurance products in their offices. They are allowed to set up separate locations to sell that type of insurance.
In a ruling last fall, however, the Office of the Superintendent of Financial Institutions found that under existing law the policy separation did not extend to websites, which Flaherty had said contravenes the policy intent.
The insurance brokerage industry welcomed the proposed legislation Thursday.
“This is very good news for consumers, it extends the protection that they have currently in branches to the Internet,” said Steve Masnyk, spokesman for the Insurance Brokers Association of Canada.
“The government, with good reason, decided that in a branch this was not fair to consumers and should be outlawed, and the same thing should be applied to the Internet,” he said.
Masnyk said when the rules prohibiting banks from selling insurance were drafted in 1991, they extended to branches and telecommunications, but not the still burgeoning Internet realm.
He said consumers applying for credit, whether online or in a branch, are susceptible to being coerced into buying other products they think they need because the ad pops up on the screen and the two appear to be related.
“If banks have this huge advantage over everybody else, it’s unfair to consumers,” he said.
But the Canadian Bankers Association said the proposed regulations could hamper consumer choice in the insurance market.
“Our position has always been that consumers benefit when there is choice and competition in the insurance market, and we are concerned when restrictions on that choice and competition harm consumers’ interests,” it said in an emailed statement.
The CBA said that individual banks will review the new rules to determine how they will affect their operations and what they need to do to comply.
The regulations would allow a bank’s corporate web page, where no financial products are promoted, to display links to insurance subsidiaries.
Royal Bank (TSX:RBC) and TD (TSX:TD) are major insurance providers through subsidiary companies, RBC Insurance and TD Insurance.
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.