Canada to Stop Insurance Sales on Bank Web Sites

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Canada will prohibit major banks from marketing insurance products on their Web sites, marking a major victory for big insurers in a long battle with the banking industry.

Canadian Finance Minister Jim Flaherty told Canada’s Business News Network (BNN) that rule changes will come in with the next budget implementation bill in early 2010, effectively reversing a decision in favor of the banks earlier this year from Canada’s financial regulator.

“I’ve made it clear now that we will change the rules so that the marketing of insurance via Web sites, virtual bank branches, will not be permitted,” Flaherty said.

While Canada’s Bank Act prohibits banks selling insurance through branches — the subject of a decades-long political battle with insurance brokers — big banks have slowly expanded into the C$115 billion ($108 billion) domestic insurance market.

Hungry for growth, the top banks have been pushing sales on the Internet, in stand-alone insurance branches or through insurance subsidiaries, carefully skirting regulations meant to keep insurance and banking separate.

As recently as June, bankers celebrated a ruling by the Office of the Superintendent of Financial Institutions (OSFI), saying banks could promote insurance on their Web sites.

“We are completely shocked that Mr. Flaherty would want to limit how and where consumers can access information about insurance,” the Canadian Bankers Association said after Flaherty announced the rule changes.

All of Canada’s major banks — Royal Bank of Canada, Toronto Dominion Bank, Bank of Nova Scotia , Bank of Montreal and Canadian Imperial Bank of Commerce — offer some variety of insurance.

Flaherty told the banks that in his view “this was not consistent with the government policy, which is that insurance activities are not generally to be carried on in bank branches, and that we would extend that policy intent to websites as well.”

The Bank Act prohibits banks from directly selling insurance in branches, but the OSFI ruled in June that “a bank website is not a bank branch” and therefore a bank could promote insurance products on its Web site.

A finance department spokesman suggested that the insurance arms of the banks would still be able to use the Internet if they kept the information separate from the main bank Web site.