Thursday, June 18, 2009

(No.33) Banks, insurance & the internet

A June 10 Globe and Mail article by Tara Perkins ("Bank websites may sell insurance: regulator") made a financial services mountain out of a molehill. Proclaimed the Globe: "banks have notched a rare victory in their fight with Ottawa over selling insurance ..."

What was the magnitude of this victory, this decision by the federal financial regulator (OSFI)? We are told that it means that "the barriers the federal government has long maintained around bank sales of insurance could be crumbling ..." Gee that would be really something -- if it represented more than breathless credulity. 

The article in question ignores a key reality about any expansion of bank branch retailing of insurance beyond the present permitted types: any decision to expand significant bank insurance retailing activity will be a political decision, not one made by Ottawa bureaucrats; any such change is one that remains not merely unsupported but opposed by the government and opposition parties. 

The specific "victory" to which the Globe article refers? OSFI has not accepted a complaint from the p&c brokers about insurance and bank websites -- that's the big news, I kid you not. Since all the big banks have also had for years their own insurance subsidiaries and these in turn have their own websites, one wonders how this OSFI 'decision' represents all that much by way of change.

The complaint to OSFI, to the extent that it was prompted by concerns about the online 'direct' sale by banks of property & casualty insurance products,  was I suspect more about precedent than potential bank sales even if they involve buyer-initiated product. That is not the case in the main when the direct sale by internet or otherwise involves individual life insurance which remains highly resistant to the generation of buyer initiative; its purchase is, after all, inseparable from contemplation of the buyer's own mortality.

The evidence of the insurance industry's record on this point is clear and of long standing [see my comments on this subject in various postings to this RickardsRead blog]. As I have never tired of pointing out over the years to life company executives, journalists and assorted industry 'experts': the active, prospecting, selling agency system in its various forms continues for very practical reasons to be the foundation on which rests the bulk of individual life insurance distribution. 

Also -- the next time you read more of the Royal Bank-generated 'spin' about all the wonderful insurance branch offices RBC is setting up cheek by jowl with their own bank branches as a way to circumvent restrictions on bank branch retailing of insurance, take a moment to wonder how much life insurance is actually bought there by customers who walk in and ask, in Dickensian fashion, 'please sir, may I buy some life insurance?'. Or, is the typical RBC 'insurance branch' more like a life company office in which are based licensed sales intermediaries [aka agents] who actually have to acquire new annual premium by selling the insurance? 

Banks being in a position within their branches to pressure their banking clients to buy individual life insurance would indeed be a change light years away from that of trying to use their bank websites to generate direct [non-agent] sales -- to sell their life insurance products in serious quantity directly, relying on buyer initiative. That is so whether the website is the bank's own or that of its insurance subsidiary.
This great 'victory' for the banks means next to nothing in terms of enhancing sales of client resistant insurance nor does it constitute the"crumbling" of either the "barriers" to expansion of bank branch retailing of insurance (i.e., what the banks really seek) or dissipation of the highly effective political opposition to this change in Canada by the sales intermediaries on both sides of the insurance fence, life and p&c.

One could fill the pews of a cathedral with assorted insurance industry 'experts' in life companies or hired as consultants by North American life insurance companies over the years who may even have believed the filigree work they did in recent years on the myth of the internet as the future of insurance distribution [remember when the future of distribution was to be 'one stop financial shopping'?]. Journalists and bankers can be just as gullible.

I will return to the subject of recent developments involving Canada's big banks in my next posting (No.34).  

Alastair Rickard