Some advisors are concerned that discounts offered by RBC Insurance's direct channel on T10 and T20 products could cost independent advisors money and clients.Not long ago, Ivan Cons, an advisor in Montreal, met with a client who needed $1 million of term life insurance coverage. Mr. Cons surveyed the market for standard smoker rates, and found that RBC Insurance was offering the lowest premiums on its 10-year renewable term product.
The client had done his own research and had come to the same conclusion, but he pointed out that if he bought the same coverage directly from RBC Insurance, he could obtain an additional 10% discount on his life premiums because he had already purchased automobile coverage from RBC Insurance.
They had built up a good relationship over the last six years and the client wanted to keep Mr. Cons as his advisor, but he also made it clear that he was unwilling to pay more for the same insurance policy.
"I did what any broker would do and got on the phone with RBC," says Mr. Cons. Unfortunately, he says he was unable to resolve the issue. The insurer told him that the client could not obtain the discount if he applied for coverage through an advisor. Mr. Cons says he has sent an email to RBC Insurance pointing out that by operating this way, the insurer is essentially competing against both advisors and their MGAs. "I vigorously disagree with their forcing clients to sever their relationships with their broker in order to get the lowest rate," says Mr. Cons. "I certainly cannot fault the client for wanting to pay less money, but RBC is putting the client in a very awkward and unfair position."
A section of the RBC Insurance web site describes an "exclusive offer" available to the company's home and auto clients. "As a valued client, you qualify for 10% savings when you purchase term life insurance from RBC Insurance," it reads. The offer is available for new Term 10 or Term 20 policies purchased by those who have existing property and casualty insurance coverage, and the 10% savings is only applied to the cost of insurance.
Since insurance is a provincial jurisdiction, guidelines about rebating vary across the country. In Alberta, for example, regulations were changed about ten years to allow insurance advisors to hand a portion of their sales commission back to clients. The law in Quebec clearly states that insurers are entitled to offer a discount to clients who hold multiple products with the same financial institution.
But according to Regulation 7/00 of the Ontario Insurance Act, an officer, employee or agent of an insurer may not allow or give, "directly or indirectly, a rebate of all or part of the premium stipulated by a policy to a person insured or applying for insurance in respect of life, person or property in Ontario, or offers or agrees to do so."
So how does RBC Insurance's sales practice differ from rebating? Neil Skelding, President and CEO of RBC Insurance, says there are no commissions priced into or payable on the simplified products, and that the premium as stipulated in the term life policy purchased under the program is paid in full. (See the accompanying article for Mr. Skelding's entire response to The Insurance and Investment Journal's questions.)
Lorne Marr, an advisor in Toronto who also runs a small MGA with about 30 advisors, says that he has also lost some business because of the RBC Insurance discount, and suggests that advisors are at an obvious disadvantage when the insurer is offering a discount on the same product.
What would he propose to clients who wanted the 10% off a term policy? "I would try and come up with a better solution with an alternate carrier and if I can't, I would suggest they go with the RBC plan," he replies. Mr. Marr has also raised the issue with RBC Insurance, and while he describes the wholesalers he has spoken with as sympathetic, he says they have not offered any workable solutions.
Would Mr. Marr be prepared to offer the same 10% discount to his clients if RBC Insurance would make it possible for him to do so, even if it meant accepting a reduced commission? He says he would consider it, depending on the percentage drop in compensation. "The sales process has to work for both parties," he comments. "I think this type of thing is disappointing as it undermines the brokers' relationship with the client. I have no problem with a company using multiple distribution channels but it should be a level playing field."
The Insurance and Investment Journal contacted the Canadian Association of Independent Life Brokerage Agencies (CAILBA) to ask for their position on the subject. "Quite frankly, I am not familiar with RBC's sales practice nor have I heard from any of our members in terms of their concern," replied CAILBA president Peter Lamarche. Given the lack of comments from MGAs, he says his organization prefers not to comment at this time.
If advisors and MGAs don't make their opposition to this kind of practice known, Mr. Cons suggests that their complacency reinforces the bank insurer's decision to sell direct, and could open the door for further intrusions into the independent advisor's turf. "It also encourages other companies who may be watching from the sidelines to adopt similar policies," he says. "Bit by bit these policies will erode our relevance and funnel our clients directly to the big life companies."