RBC Insurance’s strategy to open retail insurance offices next to its bank branches across Canada has raised some concern among life advisors.
The first of these near branch insurance offices opened in July next to a Royal Bank branch in Scarborough, Ontario. The branches will offer property and casualty (P&C) insurance, as well as simplified life products.
A total of five insurance offices are scheduled to open this year. In addition to Scarborough, offices are planned for: Kirkland, Quebec; Kingston, Ontario; on Yonge and Bloor Street in Toronto and in Hamilton, Ontario.
Many more insurance offices will be opened if the current federal regulatory prohibition against selling insurance in bank branches stays in effect. “We’ll certainly move to a hundred fairly rapidly and then we’ll move beyond that,” Neil Skelding, president and chief executive officer of RBC Insurance, told The Insurance Journal at RBC Insurance headquarters in Mississaugua.
John Whaley, executive director of The Independent Financial Brokers (IFB) says he thinks RBC Insurance’s new distribution strategy will hurt independent life advisors.
“It concerns us greatly,” he says, adding that selling insurance next to bank branches could increase the risk of tied selling – for example, linking the granting of a mortgage loan with buying the bank’s insurance products. He also contends that consumers are better served by independent advisors who can sell a range of products from multiple insurers.
Mr. Skelding, on the other hand, says the strategy is not a threat to life advisors. With respect to life insurance sales, the near branch offices will be serving the lower mass market that is not attractive for most independent advisors.
“What we felt we needed to address was the uninsured market, the 20% of Canadians who don’t have coverage and perhaps want $30,000 to $50,000 of term insurance…that’s not something the brokers are chasing, or for that matter are that interested in,” Mr. Skelding says.
Licensed insurance agents will sell the simplified life policies. Customers who require more complex life products will be referred to an advisor, Mr. Skelding says.
Mr. Whaley disagrees with RBC Insurance’s viewpoint that the low-end market is of little interest to independent life advisors. “It’s a nice sentiment, but brokers sell a lot of that as well and are not prepared to cede this business to the banks.”
He says that the IFB suspects that opening insurance offices adjacent to branches is aimed at influencing the federal Bank Act, which comes up for review in 2006. The IFB has sent a letter to the federal Minister of Finance outlining its concerns about RBC Insurance’s new strategy.
At the time of the interview, just prior to the opening of the Scarborough office, Mr. Skelding said he had heard very little reaction from RBC Insurance’s independent producers about the plan. About 65% of RBC Insurance’s life business presently comes through a network of 17,000 independent third parties such as insurance advisors, financial planners, managing general agencies (MGAs) and stockbrokers.
However, the opening of the branch received widespread media attention and sparked some lively comments from life advisors on the online forum, For Advisors Only.
Raymond Foo, managing owner of A-One Financial in Edmonton, shared with The Insurance Journal a message saying, “We have a choice of whether to give our business to RBC Insurance or not. Currently, they depend a lot on the brokers.”
Steve Howard, president and chief executive officer of Advocis, an association with a membership of 15,000 financial advisors, says that technically RBC Insurance is not off-side with respect to Bank Act regulations, which forbid in-branch sales of insurance. “But they are certainly testing the waters. There is no question about that.”
He adds that while not condoning RBC’s approach of skirting around the regulation, Advocis is not so concerned about this specific issue. Instead, Mr. Howard says the bigger concern is the need to resolve a number of pressing regulatory issues such as defining what constitutes tied-selling; what guarantees consumer privacy and whether those who sell insurance must be licensed.
Mr. Skelding underlines that property and casualty insurances sales will be the main focus of these offices and a full range of general insurance products will be offered.
A storefront operation lends itself well to general insurance distribution, he notes. RBC Insurance does not use brokers to distribute its home and auto products. Currently, RBC Insurance sells direct, mostly through its call centre.
Despite their P&C focus, RBC Insurance’s near-branch offices do not worry Randy Carroll, chief operating officer of the Insurance Brokers Association of Ontario (IBAO), an organization that represents 8,000 independent P&C brokers in Ontario. Providing that no information is being exchanged back and forth between the bank branches and insurance offices (which is illegal), he has no issue with the new development. It’s another competitor in the market and “competition is good for the consumer.”
RBC Insurance’s general insurance business experienced 54% growth last year, making it the second fastest growing P&C insurer in Canada, Mr. Skelding. So far, this growth has been organic. RBC Insurance has never acquired a P&C company, although Mr. Skelding says that “we’re always looking.”
At the same time that it is setting up this new retail distribution network, RBC Insurance is also actively lobbying government, consumers and other stakeholders with the hopes of changing the Bank Act to allow insurance products to be sold within branches.
“Right now there is a consultation process going on, but it is a protracted process.” Even without changes to the legislation, Mr. Skelding believes the retail insurance offices will be competitive. “Anyway, we can’t wait around for the federal government to make a decision,” he adds.
“What’s kind of odd is that you can go to a grocery store and buy insurance, but you can’t got to a bank branch where you get all your other financial advice. It’s a strange paradox.”
Mr. Skelding points out that in Quebec, bancassurance is nothing new. “I can’t think of a life broker or MGA who would be concerned about Desjardins…They co-exist happily.” He adds that home and auto brokers in Quebec also exist side-by-side with Desjardins. There is a value proposition that Desjardins offers and there is a value proposition that a broker offers and they’re different.”