The Big Canadian Banks Have Begun Selling Life Insurance

Is it a Good Thing to have Canadian Banks Sell Life Insurance?

This is the first article in a 5-part series about Banks Selling Life Insurance in Canada.

This is a big topic and a perplexing question – Should Canadian banks be allowed to sell life insurance? In many ways this question is already a mute point, as some of Canada’s largest life insurance companies are owned by the big banks, and are even branded with the bank’s generic logo (usually saying Insurance next to the logo). In many other ways this is a simmering debate in the Canadian financial services industry that will affect the products being produced and the level of service provided to Canadian consumers for years to come.

The Federal Government of Canada has held the line on their strong stance that banking and insurance should be maintained as separate businesses and all insurance products (life, health, home, auto, etc.) should NOT be offered to consumers through the local bank branch network. Why? Traditionally in Canada there were 4 pillars of the financial services industry:

• Banking
• Trust Companies
• Mutual Fund/Investment Companies
• Insurance Companies

None of these different financial services companies could do business in the realm of the other. Well, the walls have fallen and Canadian banks almost totally control the Trust companies in Canada and have huge mutual fund divisions, controlling over 40% of all mutual fund assets in Canada (and with the largest amounts of new money coming into them all the time). The only pillar of financial services that has remained separate from the banks (well sort of) is the insurance industry.

That too is changing as the big banks have begun buying up life insurance companies and strategizing about how they can leverage their powerful brands and national distribution arms to reach the mass market of Canadians. Now, I’m not saying this is totally a bad thing. Canadians are very under-insured and there really does need to be more sales people and a more efficient distribution model to get the insurance protection people need out into the market place. But, changing the fundamental rules (in The Bank Act of Canada) to allow big banks to sell life insurance might be a huge mistake.

I will take the next four articles to explore this topic in more depth. It is just too complex to rush through, and as a consumer you should be aware of all the ramifications of buying life insurance through the current bank owned distribution models and what the world might look like if things were to drastically change. Here are some brief highlights of the upcoming articles on banks selling life insurance in Canada (being written over the next 4 days).

Simple or Complex Life Insurance Advice

One scary thing, from the eyes of a licensed insurance professional, is the push for simplicity around insurance planning. Is simple always the best thing? Simple is easy to understand, easy to package, market and sell. However, when it comes to life insurance, simple doesn’t mean high value. Simple means low value for the consumer and big profits for the insurance company. Life is complex. Your investments, wealth creation, risk management issues are complex. How can an overly simplified product address all these needs? There is a reason life insurance, especially permanent life insurance, is complex, and that’s because to create value for the client the product must be designed with many moving part – insurance protection, cash value, investment funds, dividends, optional riders and benefits, etc. We should be careful about the bank’s push to simplify or commoditize life insurance products, as the real winner is the bank, not the client.

Being Boxed in by the Big Banks

The fundamental marketing strategy of the big banks is to get you into as many financial products as possible so that you will never leave them (it’s just too much of a hassle). They get you with a bank account, a credit card, investment funds, mortgage, lines of credit, another bank account for savings, and now they can tack on life insurance (not to mention home and auto insurance and health products). Some people do like dealing with just one financial institution, like their local bank, and keeping everything in one shop. Others like choice and different points of view. The one major concern is the quality of advice being given. Canadian banks are notorious for segmenting their clients based on assets and “value” (how much money they make the bank) and providing varying levels of service and advice. The wealthiest clients with the biggest loans and largest bank accounts get gold key service. The poorest clients get junior bankers fresh out of college. Does this model adequately serve the mass Canadian market when it comes to life insurance planning?

Concerns about Privacy and Sharing Client Information

Far too often the banks are quick to respond to sales opportunities, but slow and broken when providing holistic service to the client. Your client profile is passed around the different divisions of the bank if there are other products and services they think they can sell you. But, the different parts of the banks operate in silos, and don’t communicate well with one another, except when there is an identified sales opportunity and it is part of the bankers mandate and measurable reward system to follow-up on these potential sales. Unless you have developed a personal relationship with your chosen banker, and hopefully they don’t get moved to a new branch, how does the complexity of your total financial needs and now your risk management needs get properly served in a massive, disjointed organization? Are you getting advice or are you being sold?

Acting in the Spirit of The Bank Act

The government of Canada has decided that the differences between managing a person’s money and managing their risks are different types of business, and should be sold by different types of advisors. The rules in The Bank Act, section 416, clearly state that no sales or promotion of personally owned life insurance products (called prohibited activities) take place inside bank branches. The major banks in Canada are taking great care not to violate the express letter for the law, but are finding ways around the laws, as they are written, which many would say is going against the spirit of the Act. Understand what The Bank Act says about insurance sales, why these laws are in place, and how the banks are manoeuvring around them to capture your business.

Let us know what you think about Canadian banks selling life insurance

I’m going to be honest. These articles are all going to position the advice of an independent life insurance broker as a better level of service and product over a bank distribution model (either what they are allowed to do today and what they hope to do in the future should The Bank Act be amended). At Life Guard Insurance we know the value of advice, and working with a professional and skilled life insurance broker. But we would like to hear what you think. Let us know if you want things to change or stay the same and why. Looking forward to hearing your thoughts.

The article was written by +Mitch Reynolds. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about Canadian Banks selling life insurance would be very much appreciated.

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2. VIDEO: Canadian’s In Denial Over Mortgage Life Insurance

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