The Pros and Cons of Allowing Banks to Sell Insurance

House of Commons
The government decides
if the banks can sell insurance.

Banks have been lobbying to sell life insurance via a branch network since the mid ’90s, according to The Globe and Mail. The following is a look at the pros and cons of allowing Canada’s big banks to sell life insurance within their branch network:

Pros:

1. Banks are able to serve an underserved market. Many middle and lower income Canadians are vastly under-insured and it’s not usually economical for a broker or captive agent to sell a small policy to a middle or low income Canadian.

2. It creates a convenience for the consumer. Many consumers like the idea of being able to walk into a local bank and purchase life insurance.

3. Salaried agents would be able to offer insurance solutions in a low pressure environment. Theoretically, this makes it easier for customers who want to buy insurance and they are more apt to buy in this environment.

Cons:

1. The increased likelihood of “Tied selling”, which is the coercion of a consumer into buying an unwanted product, as a condition of buying a product they do want. For example, a bank might only set up a consumer’s mortgage if that customer purchases mortgage insurance as well. This action is illegal and works against the consumer. 

2. More impersonalized service. This is especially true when insurance is sold through a web-based bank application.

3. Loss of jobs. Although this may not be a direct concern to the consumer, if the big bank were to takeover a significant portion of the Canadian life insurance market, that takeover would likely translate into sizable job-loss.

What do you think? Should the banks be able to sell life insurance? Weigh-in below with a comment.

 

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  • Tony
    July 11, 2013 at 11:45 am

    Letting banks sell life insurance is a slippery slope. Tied selling is an easy thing to say you will monitor but a harder thing to actually monitor.

    • LSM Insurance
      July 11, 2013 at 1:45 pm

      Tony you make a good point on tied selling.

  • LSM Insurance
    November 4, 2012 at 10:42 am

    Thanks for the positive feedback.

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    November 4, 2012 at 7:35 am

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  • LSM Insurance
    March 13, 2012 at 1:52 pm

    Thanks for sharing your insights.

    Tied selling is illegal in Canada as well http://www.fcac-acfc.gc.ca/eng/consumers/rights/tiedselling/index-eng.asp – but many people feel it still goes on.

  • Jim
    March 13, 2012 at 12:09 pm

    I have read many of the comments. As both an independent agency owner AND a former bank insurance agency Executive in the US, I may be able to address some of the questions/concerns raised. In the US, tied sales are illegal. Significant fines may be issued. This practice has NOT been a problem in banks. While it is true that banks have access to many customers, they have not done a great job of selling protection life insurance. Banks are transactional and like transactional products. They do a better job with Annuities and Single Premium (wealth transfer) life insurance. Banks do not collect customers medical information. That information is sent to the underwriting insurance company. Its the bank’s responsibility to act in the same manner as any licensed agency (yes the bank must have a licensed agent/agency to accept compensation) in protecting a clients personal information. They cannot collect, disclose or use personal information in any way without the customers express permission. Finally, having banks sell insurance opens many opportunities for creative agents to provide services. Most small, regional banks will outsource these functions on a commission split basis to licensed local agents. Many larger banks are now outsourcing to third parties as well.
    Put on your enterpreneural hat and think of the possibilities for your practice once you have access to thousands of new, potential clients in your local bank. The most successful banks selling insurance are the ones that acquire insurance agencies or that hire insurance professionals.

  • LIR
    July 28, 2011 at 9:22 am

    I work in the insurance field in the bank, and constantly am being told from clients that they would rather deal with the bank, people they trust, rather than deal with commissioned agents who strive to gain commission off their sales. We are living in a time when people are more concerned about their money and where its being spent, and they want a reliable source, a name like BMO, RBC or TD backing their purchase. It’s a society that needs the trust associated with the bank name.

  • LSM Insurance
    March 27, 2011 at 12:12 pm

    Sarah, I don’t know if strong sales is a valid reason for allowing banks to market life insurance in branch. Have their been benefits to the US consumer.

  • Sarah
    March 27, 2011 at 11:52 am

    In The US Bank life insurance sales soared to a record high in 2010, although sales declined sharply in the fourth quarter, the first quarter over quarter decrease in seven quarters, according to the fourth quarter 2010 Kehrer-LIMRA Life Report released on Thursday.

  • Sheila
    March 5, 2011 at 4:03 pm

    Yonus – banks worry about one think profits end of story.

    The mainstream can only bring in profits if the gauged along the lines of what is done with exhoribenent bank fees.

  • Yonus
    February 20, 2011 at 11:42 am

    Hi William,

    Regarding the point on the smaller client “In fact, you probably have to put in more time to handle a small client because money means more to him/her than the bigger, wealthier clients.”

    That is exactly why most insurance companies are not serving or not properly serving smaller clients. Banks have experience dealing with mainstream and lower income clients

  • LSM Insurance
    February 5, 2011 at 11:44 am

    Thanks for the note Louis.

    The challenge may be that premiums initially go down but if some of the smaller insurance companies are squeezed out – premiums may subsequenty increase.

  • Louis
    February 3, 2011 at 9:09 am

    Competetion is good for the consumer.

    If I can get a better deal on my life insurance I’m all for the banks selling life insurance.

  • Michael
    February 2, 2011 at 11:31 pm

    My experience with banks over many years, as both a customer and financial professional, has not been very positive. Allowing banks to sell insurance products within their branches would be more harmful than helpful for Canadians. I have been sickened by the “advice” given by banks to many of the people I meet. No one I have ever talked with has ever had a bank representative give them holistic financial advice. On the other hand, many people have indicated that they have had insurance professionals help them with holistic financial planning. I have known many banking loans officers who have all told me that they are required to upsell other products. If that is the case, is the bank working on behalf of the client, or trying to improve profits? There is a conflict of interest here.
    One of the largest issues facing Canadians is over-spending and high debt load. Often I see families suffocating under mortgages, vehicle loans, and credit card balances – all authorized within the bank’s lending guidelines. Then these families ask for my help with their financial disaster. It would be so much easier if the bank wouldn’t allow them enough rope to hang themselves in the first place – but not as profitable for the bank. No, I don’t foresee the banks acting honourably for the client if they are ever allowed to sell insurance products in the branch.

  • LSM Insurance
    February 2, 2011 at 3:11 pm

    William, Thanks for sharing your insights.

  • William
    February 2, 2011 at 3:09 pm

    We are living in a world where personal face-to-face service is on the road to being more and more minimized. We have observed a banking trend where they are cutting down on the number of bank tellers and encouraging customers to use banking machines. Online banking is an example of dehumanizing direct personal service. The life insurance business (including disability insurance, critical illness and long term care insurance) involve an understanding of the needs of the client and the client’s true understanding of the product. It involves a long term commitment – a wrong commitment has detrimental consequences. A life insurance agent/broker is a professional with a deep understanding of life insurance products and he/she must have great patience in dealing with people. Not everyone can become a life insurance agent/broker. You need passion and dedication. It’s not a matter of whether you are making a high premium sale or a small premium sale – you have to devote as much time with every prospect you meet. In fact, you probably have to put in more time to handle a small client because money means more to him/her than the bigger, wealthier clients. Life insurance is definitely a personal face-to-face business requiring professional knowledge and technique which, for the good of the consumers, the banks should not touch. On the other hand, since the life insurance professionals are already having personal involvement and knowledge of their clients, I would suggest life insurance professionals offering banking services to their clients in the convenience of the consumers’ home. I am sure consumers would prefer this over online banking.

  • LSM Insurance
    February 2, 2011 at 2:51 pm

    Hi Dave, there is definetly something to be said for providing quality advice and service.

  • LSM Insurance
    February 2, 2011 at 2:50 pm

    Thanks Casey – as John mentioned above certain life lines may not be as profitable as the abnks initially antipiciated

  • Dave
    February 2, 2011 at 1:22 pm

    In my experience as an independent financial planner, at the branch level, banks are great at marketing and bad at advice. If banks are allowed to sell life insurance a lot of consumers are unknowingly going to end up with improper insurance coverage. For that reason alone I don’t like the idea of banks selling insurance. Insurance should be purchased as a by-product of an overall financial plan…I just don’t see banks ever doing a proper job in that regard. As long as there are consumers that recognize quality, a good insurance broker has nothing to worry about.

  • Casey Cameron
    February 2, 2011 at 1:21 pm

    I don’t think that this is good for the person who matters the most, the end consumer. Increasingly complex insurance products, in particular as it pertains to living benefits, demand the attention of an expert. A jack of all trades in a bank who wears too many hats (lending, transactional banking, mutual funds, GICs, etc.) cannot provide adequate risk management advice to a client. It’s a bad idea and although banks profits may rise, the consumer will ultimately suffer.

  • LSM Insurance
    February 2, 2011 at 10:22 am

    Thanks Ali – a lot of people in the insurance industry share this viewpoint.

    But change often happens whether we like it or not.

  • Ali
    February 2, 2011 at 12:49 am

    Banks are in the business of lending and borrowing, while insurance companies are experts in managing risk. Two different worlds and two different needs. I think Canadian financial intermediaries should stay put in regard to their scope of business. If it ain’t broke, don’t fix it.

  • LSM Insurance
    February 1, 2011 at 7:43 pm

    Thanks for the clarification.

  • Valentin
    February 1, 2011 at 7:30 pm

    No, my note wasn’t about tied selling. It is about banks access to private health information. If they had such an access they would be willing reduce the financial risks related to the sales of banking products such as loans and mortgages. Consequently, if credit bureaus will have information about rejected or pro-rated loan applications, other financial institution will also restrict unhealthy customer’s access for credit or will offer much higher interest rates.

  • LSM Insurance
    February 1, 2011 at 5:54 pm

    Hi Valentin,

    Thanks for the note. This seems to go back to the issue of tied selling. The bank should not be able to make sale of one product contingent on the sale of another product.

  • Valentin
    February 1, 2011 at 5:21 pm

    As a bank customer I feel bad. In addition to financial information they will collect customers’ health infomation. That’s mean the actuaries could write a risk factor table for bank customers to prevent a huge number of them from receiveng loans, mortgages etc. So banks could virtualy control all aspects of customer’s life.

    As an Insurance Broker I’ll receive tens of thousand of unbeatable but poor paid and poor educated competitors.

  • LSM Insurance
    February 1, 2011 at 3:50 pm

    John – one of the issues concerning many consumers and people within the Canadian insurance industry is ‘tied selling’. Has that been a problem in the United States?

  • LSM Insurance
    February 1, 2011 at 3:48 pm

    Jack the pharmacist anology is an interesting one. The issue of mortgage insurance through a lending institution has been addressed on our site as well as well as maninstream media outlets. Life insurance definetly has more nuiances the many traditional bank products.

  • John Polak
    February 1, 2011 at 1:26 pm

    It may be different in Canada, but in the US Banks have been permitted to sell not only life insurance but in many states, P&C as well. It really hasn’t made much of an impact over the last 30 or 40 years.

    While there was initial fear that Banks would compete with carriers as risk bearers, they quickly found out the rate of return was far less than their core banking business. Even with the higher return on investment as a distribution channel, there are a number of impediments that seem to make it a non issue of which the non personalized approach is probably the largest.

    There is little personal relationship to the bank today so there is little affinity in securing insurance when there are so many competing channels to access the same products. In addition to independent agents, career agents, internet and direct response channels the combination of greater insurance expertise, personal attention or convenience would all seem to work against major long term success of a bank only distribution network.

  • Jack Larmond
    February 1, 2011 at 12:54 pm

    I believe that in certain situations the banks coverage is “better than nothing” as in the case of mortgage insurance. Although it is very alarming & surprising as to the percentage of the population that is unaware that a Life Insurance policy through a insurance broker/agent is much more comprehensive and usually much less expensive than what the bank offers. There are multiple news stories from accredited stations (such as CBC news) that highlight the importance of doing your homework by talking to an insurance agent instead of just “signing up” through the bank. Insurance agents are in the business of insurance whereas bank’s are in the business of banking. I wouldn’t buy my medication from anyone other than a pharmacist and I also wouldn’t buy my life insurance from anyone other than a life insurance agent.

  • Lee
    January 31, 2011 at 10:00 pm

    I think if the banks do get access the brokers who have do will continue to excel are those who have created a niche.

  • Howard
    January 31, 2011 at 8:53 pm

    I was working for BMO-Nesbitt Burns offering their Life product a few years ago and the only leads we were provided were Air Miles customers on an inbound basis. I personally feel that once the “walls” are torn down the banks will change the basic foundation of Life Insurance. Having access to millions of potential banking customers would jeoopardize every Insurance brokers ability to make a living in this industry and there would be a massive migration away from selling Life Insurance as we know it now…

  • Bill
    January 31, 2011 at 8:01 pm

    As with any argument there are pro’s aand con’s. Hopefully this will lead to a healthy debate. It is my fear as one of those who’s livelihood would be lost that people can recognize the importance that financial planners offer. It seems that only the loudest will be heard so we better SHOUT!! Otherwise you may be looking at a dodo!!

  • LSM Insurance
    January 31, 2011 at 6:05 pm

    Thanks Tamara for sharing your inights.

  • Tamara
    January 31, 2011 at 5:42 pm

    People need to fully understand their insurance policies. Sadly mortgage insurance through the bank has not been represented well and many people are horrified to find out they do not have the coverage they believe they had. The transaction is completed far too quickly and many people lose their coverage in the later years. Sadly that is when they may have become uninsurable. The public is served best by dedicated insurance professionals.

  • Tamara
    January 31, 2011 at 5:40 pm

    Who is speaking for the agents who say it is not economical to sell small policies??? I am thrilled to give good quality insurance to clients at rates they can afford. Wheter it is a large or small policy is not the point. Brokers take pride in helping people provide for their families when they can not. I resent anyone saying that brokers don’t want to sell small policies. Brokers want to help people.

  • LSM Insurance
    January 31, 2011 at 4:59 pm

    Richard – thanks for sharing your thoughts. The point about life insurance being turned into a commodity is well taken.

  • Richard
    January 31, 2011 at 4:55 pm

    My comments would likely be considered biased, as I am an independent agent, but I would agree with the pros and cons already stated. My one major concern is that it turns life insurance into a commodity, and as such it is treated much like some of the on-line sites where people ask for a quote, receive one, with given a link to apply. Whether it is the appropriate coverage or not, is lost in the shuffle. I recently had a healthy client apply for a non-medical “no questions asked” plan with one of the bank’s on-line insurance sites, and actually spoke to a rep. He bought the coverage and had been paying for it for 6 months before he got to me. For traditional medically underwritten coverage he qualified for preferred term rating giving 8 times the coverage amount for the same premium amount. He didn’t know what to ask, and the bank person didn’t bother to ask the probing questions.
    With the traditional turn over in bank staff, will the bank person, we assume who is at least life licensed, gain the experience necessary to ask the right questions to ensure the client is getting the right coverage? I would suspect not.
    Also it is well known that bank employees are under pressure to sell what the bank want to sell their customers now for investments for example, but which are not always in the customer’s best interest. I suspect life insurance will have the same pressures. This happens in the independent distribution channel as well, but at least there is a perception that it is expected there, but not from a bank.
    From the convenience perspective, given we independent brokers typical visit a client in their homes, I don’t see how being able to purchase life insurance only during bank hours is an advantage.