Banks prohibited to sell insurance online

Canadian banks are shocked about the new initiative from the finance minister Jim Flaherty. He wants to amend the Bank Act, which prohibits banks from selling insurance at their branches and also through their websites.

Bank representatives are shocked, stating that Flaherty prepared this serious amendment without any consultation with the banking industry. Virtually all banks in the country are targeting the lucrative insurance market to offset their fallen revenues from traditional banking products and had started to offer insurance products on their websites.

We have expressed our negative opinions about selling insurance online in one of our recent articles. The Government’s initiative is based on a different reasons. However, it will surely help thousands of insurance brokers and advisors across the country. Insurance products are complicated and should be treated as such. As the points of sale (websites) have become more and more simplified, the quality of the services offered has declined. Well tailored insurance policies require the help of experienced advisors and these cannot be found on impersonal bank websites.

On the other hand, banks are becoming more and more interconnected with the insurance industry through other channels such as mergers and acquisitions. If a bank really wants a share of the insurance market, it can do so through these channels. In that case, the government’s initiative becomes just a useless political exercise. The Government should probably focus more on maintaining or even raising the quality of services in the insurance market.

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  • LSM Insurance
    February 1, 2010 at 2:26 pm

    Thanks for the note. But your comments are inaccurate.

    Most insurance companies do have very similar commission rates. Our brokers are at the same bonus level regardless of the carrier.

    As for larger sales being the same amount of work as smaller sales. All our clients are offered a full needs analysis this amount of work is static but it much more time consuming to explain a Universal Life plan than a Term plan.

    Clients actually pay lower distribution costs from a commissioned network than a salary network since only productive brokers providing value are compensated.

    In a salary enviroment all employees are compensated more or less equally even if they are not creating value. Poor performing bank salary employees actually raise the distribution costs which are passed on to the consumer.

  • An independent
    February 1, 2010 at 12:16 pm

    I find it hard to believe that insurance brokers are supposedly independent when they receive their commission income from insurance companies. Not all companies pay the same commissions. How can an advisor be independent when company A may pay the agent a higher commission versus company B and the commission amount has nothing related to the amount of work or type of policy for specific clients.

    If agents were truly independent, they would provide full transparency on commissions received (including any volume bonus, trips paid for by insurance companies, and other forms of incentives)…a very rare practice indeed.

  • LSM Insurance
    November 20, 2009 at 5:37 am

    Thanks for the note.

    Part of the challenge is many bank employees may not have your qualifications and or provide your level of service.

    Coercive tied selling (inducing consumers to buy life insurance as a means of getting a better rate on another banking product)has also been reported in several instances.

    In my opinion the consumer is almost always better off working with an independent broker who can provide solutions from a variety of carriers. This ensures no bias’ and the most competitive plan at the most competitive price.

  • steven
    November 20, 2009 at 3:27 am

    I am an advisor with a bank owned insurance company. I am a CFP and I have 19 years experience in the financial services industry.I have been an independent broker as well and so I know both sides of the equation. My company is extremely competitive in all price segments and is actually better priced in most categories be it mer’s on seg funds or basic term insurance. It all comes down to service and integrity and I believe that I provide that to my clients. What exactly does the independent insurance industry have to fear? I could help so many more clients who have no clue about mortgage insurance etc. but cannot because of the antiquated bank act.Please give me a reason why I am in the wrong and what exactly am I doing wrong when every day I help people who have been completely messed up by the traditional insurance industry.