The Effect of Banks Selling You Insurance Online

Rules that restrict a consumer's ability to access information about insurance don't make sense, and it's certainly not in the consumer's interest to try to put new roadblocks in place. --- Canadian Bankers Association, June 2009

Isn't it nice to know the bankers are looking out for you?

The Canadian Bank Act prohibits the sales or marketing of insurance in branches. Naturally, independent advisors like this but banks don't. Now banks can sell insurance online because a website is technically not a branch. That's great news for banks because most Canadians already bank online --- 53% in 2008.

Let's look at what banks are likely to do online and the effect on you.

What Would Banks Sell?

Banks can now integrate links to their insurance offerings into their main bank websites. That's gold. This is much like Microsoft making Internet Explorer the default web browser in Windows. You could still install other browsers but most users didn't bother. The arguably superior Netscape Navigator browser eventually got destroyed. In a similar way, the banks will get lots of insurance traffic.

What would you buy online? Probably simpler products that don't require the expertise of an advisor. Perhaps term life insurance. If you have questions, you could probably phone a call centre to get answers.

For tax planning with insurance, you probably want to meet a qualified advisor in person. However, you may want to do some research online. You won't find much. Perhaps the banks will help here.

As we've seen in the past, banks dominate and take over entire sectors. Remember the days of separate trust companies and stock brokerages? Some banks now own insurance companies too. The sun continues to rise.

Who Suffers?

Independent advisors face the biggest challenges. Research routinely shows that families are underinsured. Independent advisors have difficulty reaching them. Insurance sales are labour-intensive, which encourages advisors to focus on larger cases and more expensive types of insurance which pay higher compensation. This is not meant as a criticism, but a reflection of economic reality.

Banks argue that they could help the underinsured if only they could sell insurance in their branches. After all, who doesn't have an account with a bank? Banks have systems and procedures to handle small, low revenue transactions like selling GICs. If you want to invest $1,000, an independent advisor would spend more in time and gas than they could earn. You might prefer to transact online because your time is also valuable. That's where large organizations have a huge advantage.

Big Deal?

Banks already sell insurance through subsidiaries conveniently located near their branches. If you invest with a bank-owned stock brokerage (e.g., BMO Nesbitt Burns, CIBC Wood Gundy, RBC Dominion Securities, ScotiaMcLeod, TD Waterhouse), you may already have been approached. I help insurance specialists at these firms as well as independent advisors every day.

Do You Win?

As a consumer, you probably win as the insurance companies and independent advisors react. You may have concerns about your privacy and how the bank uses information about your health, though. You may feel pressured to buy insurance as an implied condition or getting a mortgage, say. Don't count on lower prices. Banks are better at making money for their shareholders than saving money for their customers. Aren't most businesses like that?

Perhaps insurers will help advisors create meaningful websites to give you online alternatives. Maybe more advisors will --- alone or as part of teams --- build useful websites and send you meaningful emails. Here "meaningful" means genuinely helping you in a non-self-serving way. There's too much fluff that teases but doesn't help: you are asked to contact the advisor without knowing enough to gauge whether you think they can help you.

I'm currently running a four part series to help advisors implement eNewsletter campaigns that genuinely help you and comply with anti-spam laws.

When insurance and banks are mentioned in the same sentence, opinions vary. You can get different perspectives from the links below. Your comments are welcome.

Links

• Bank websites may sell insurance (Globe & Mail, June 10, 2009)
• Bank websites can sell insurance (Canadian Insurance, June 9, 2009)
• Video: Insurance Turf Wars (BNN, June 12, 2009)
• Why aren't more advisors online?
• Don't buy insurance from banks (Ellen Roseman, April 2009)

Podcast Episode 25 (5:43)

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