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Bank Marketing, AIC Disciplinary Website, Consumer Protection in Travel Insurance

Posted By Thom Young, March 28, 2017

The Banks Are Coming, the Banks Are Coming—They Never Went Away

Recent media reports (e.g., Insurance Business) have revealed that once again the marketing departments of our federal banks are flouting the rules for insurance sales. The problem seems cyclical. About every four or five years for as long as I can remember, the marketing managers unfamiliar with regulations governing their industry (maybe they’re a new crop of managers) begin their never-ending search for success by generating new revenue streams for their employers. (Maybe they review the revenue ledgers for the profit centre they are responsible for and wonder why there’s so little in the ones for insurance.)

Bank officers seem to receive little in the way of training on the regulatory responsibilities limiting their operations. While they may understand that banks cannot sell insurance from their branches, they don’t seem to understand that promoting the products of a subsidiary that sells insurance from their branches is the same as selling the insurance itself. In my own personal dealings with banks and lenders, I’ve often seen the offer of financing come with recommendations for life insurance and General insurance sourced by bank officers. When I do, I immediately notify the regulators, but most non-industry-related borrowers would not have any idea that they were being unduly influenced and directed by the inclusion of an insurance agent’s business card or even a quote for coverage when they are in the process of arranging financing.

Unlike the credit unions which are for the most part provincially regulated on marketing rules, the chartered banks are governed by the federal Bank Act. The Act provides a number of regulations that limit the ability of banks to use their market dominance and biased influence to compete unfairly in our business. The good lobbying efforts of our industry associations have been able to continue this limitation on the banks’ entry in our insurance market. Still, the banks seem to need to be reminded on regular intervals that they’re welcome to compete with us in selling insurance so long as they play the game the same way we do. Under Alberta insurance regulations, employees of a lending institution and many other professions cannot hold an agent’s licence if what they do can be used unfairly to influence the buying public into purchasing policies from them. Bankers are also restricted from holding an insurance licence by the Bank Act, which limits them on this point for the same reasons.

Those of us required to hold a licence to sell insurance are personally responsible for upholding the rules. The regulations require us to understand the rules, and our very jobs hinge on our compliance. The individuals involved in the banking business have no licences to enforce their compliance. Their employers are bound by the regulations but are rarely sanctioned for their employees’ violation of them. When they are caught in activities outside of the rules, their regulator most often sends them a letter to deal with the infraction and orders them to cease from further activity that is outside of the rules. When the federal Minister of Finance gives them formal notice, they usually comply, but sometimes they push back.

The banks pushed back a few of years ago when they were developing websites with hyperlinks to their insurance divisions. Their web pages advertising insurance products were indistinguishable from their banking pages. When consumer groups and our national association brought this conflation of the bank and the insurer to the attention of the Minister of Finance, the minister issued a notice that in his view they were violating the provisions in the Bank Act that prohibit the sale of insurance in their branches. Initially the Canadian Bankers Association began lobbying against this interpretation and attempted to justify the activity. The appeal didn’t go so well. The minister sent them a letter clarifying why they were wrong. Arguing a point of interpretation with the people who make the regulations rarely wins. Sometimes new regulations may be introduced that clarify what the government meant. Sometimes these new rules may seem punitive to the industry being regulated. Our industry can attest to such futile struggle in several examples over the years, not the least of which is the ongoing structure of the Alberta auto reforms introduced by the Government in Alberta over a decade ago.

The federal financial watchdog has now formally given the banks notice that they are under investigation for their marketing methods. The findings will no doubt show that the banks continue to press against the marketing service limits set out in several fair market regulations, not just the insurance ones. Telemarketing ignoring the Do Not Call List and violations of tied-selling rules for bank products seem to abound. These issues should not recur cyclically. Perhaps a couple of multi-million dollar fines might get the attention of the banks’ own in-house compliance people. Who knows if even that would have any effect. When you make billions of dollars, a million dollar fine would just be chump change, wouldn’t it?

The ongoing arguments about who can and how they can sell insurance products in Canada will continue. The banks invest millions of dollars in government advocacy and have whole departments in their organizations that develop strategy to get around rules and regulations that they see limiting their right to dominate any field in which they choose to compete. As with the stock brokerage investment business and before that the Trust business, they’ve been able to take over an entire industry and market sector completely with hardly any public notice. While some of our colleagues will argue the old laissez-faire point of view against regulations that limit or restrict access to markets, history repeatedly demonstrates that, without rules to ensure fair play, the marketplace does not play fair. This principle applies as much to those already in our business as it does to those who wish to expand their operations into it. Both the new entrants and the current players have to be watched closely as time and again insurers and large brokers try to dominate the market to the point that they can bypass competitive reality. Allowing anyone to do so is not going to benefit the consumer, the independent broker, or ultimately anyone. Market dominance destroys healthy competition by stifling the adaptation of price, service, and product to a competitive end. Without regulations to ensure fair play and proper enforcement of them, any marketplace won’t remain healthy or beneficial for long.

Transparency Is Important

The very public nature of our disciplinary matters has now become readily apparent in the Alberta Insurance Council’s new website. The public can now view the decisions of the disciplinary committees for the General Insurance Council, the Life Insurance Council, and the Adjusters Insurance Council, as well as the work of the appeal boards for each, at http://decisions.abcouncil.ab.ca/abic/en/nav.do.

As someone who has been involved in every one of the General Insurance Council decisions for the past four years, I like that the work being done is easily available for review. I think the very public and transparent record of these disciplinary matters will both encourage all licence holders to follow the rules properly and make the industry and public aware of the work being done to ensure that we serve the public properly!

If you are a DR for an insurance brokerage firm, I would encourage you to subscribe to this site for updates on who’s being disciplined for what. If your shop is large enough to have an HR person, I’d make certain that that person is subscribed too. You can subscribe to an RSS feed for email notifications of all new listings on the site at http://decisions.abcouncil.ab.ca/abic/en/l.do.

Speaking about the Regulations—Better Consumer Protection Is Needed

Ultimately, government regulations are enacted only to benefit the public. Whether the regulations are about the way insurance coverage is interpreted and adjudicated for losses or about keeping the market for these products competitive for the consumer, they’re all about the customer. The main lobbying point from the various associations representing all the participants in our industry is that making rules that benefit their operations will provide a better outcome for the public.

One issue that seems to cause recurring problems is distance from a licensed insurance agent. The further the insurance sale gets from the sales intermediary who is licensed and required by the regulations to have a standard of knowledge and professional conduct, the worse the outcome seems to be for the customer. The problem arises with many different kinds of insurance products. Take creditor life and disability insurance for example or equipment warranty coverage offered by equipment dealers. Travel insurance is another example. A report produced by insurance regulators has determined that a good number of travel insurance companies in Canada are not treating their customers fairly. Have any of you had the displeasure of reviewing one of these wordings for your clients after the adjuster tells them they’re not covered? In my experience with several situations, reviewing the wordings is complicated and discussing the coverage with the insurers confusing even for an insurance professional. The insured often times gives little thought to what the coverage is until such time as when a claim arises.

bitterness of poor quality remains long after the sweetness of low price is forgottenThe consumer’s assumption of comprehensive coverage seems to prevail as the seller puts little emphasis on pointing out the limitations of coverage and the seller’s knowledge of the product rarely amounts to little more than understanding where the insured is to sign on the application. Such deficiencies might be acceptable when the product is an extended warranty on a $135 ink jet printer but clearly not when a travel insurer may be adjudicating a US$50,000 hospital bill claim. This client might not have travelled to where the medical condition occurred had this client been aware that a claim arising from a condition that is already being treated may not be covered. Alternatively, this client might have been offered a product with a higher premium that was commensurate with the risk exposure for this client’s situation.

The real issue with travel insurance from an insurance perspective is that it is “post claim” underwritten. Few questions are asked in the application stage. The insurer thoroughly reviews the risk and makes a qualifying assessment only when a claim is made. Only then is the question asked, “Would we have insured this person for this risk?” If the answer is “no,” the applicants are left on their own to deal with the loss and not even given the basic assistance of adjudication by an insurer that often reduces the cost of a claim in the U.S. by more than half of the uninsured billings. Other than a few absolutes that limit or void coverage such as age and pronounced medical conditions, little in the process of obtaining travel insurance provides the applicants with the knowledge necessary to comprehend whether the policy actually provides the protection they expect it does. Involving an agent with an Accident and Sickness licence in the process provides a good chance that the client understands what a preexisting condition may be and how it is defined. Unfortunately, these contracts are more frequently arranged by travel agents or even completed online by the individual applicant dealing directly with the insurer than they are being completed with the assistance of an insurance professional. I recall reviewing a declined claim for an 83-year-old lady who bought a policy for a trip to Florida only to find that after a medical event leaving her with a $15,000 bill that the company she bought the coverage from didn’t insure anyone over the age of 65. She was even more confused because she had been buying the coverage from the same people for 15 years.

Travel insurance is a lucrative business. Analysis of the returns on this product for the insurers show it to be a real money maker. More checks and balances seem needed in the process to protect the consumer better. Does anyone have different thoughts or some suggestions as to how to address this problem? Please send me a note!

In Conclusion

I was out last week for my first Canadian ride on a motorcycle this year. The roads are covered in sand and gravel, wet, and in shady spots even icy. With nearly 60 years of riding experience, I’m well aware of the technical issues of road conditions and am able to navigate these hazards without too much difficulty. The road conditions are a given, but the main hazard for bikers old and new are the people driving the four wheelers. Particularly in spring, they’re not used to motorcycles on the road and often enter the roadways or change lanes without consideration of the people on motorcycles. Our bikes are small, hard to see, and quicker than many expect them to be. It’s hard to judge how fast we’re coming at you when you’re making a left turn, and we fit too well into the blind spot beside your car. While we do our best defensively to avoid getting in your way, if you are not watching for us we can’t always be quick enough to avoid you. The first statement given by the driver of a car when explaining an accident with a motorcyclist is always “I didn’t see him.” The truth more properly told is that the driver wasn’t looking. As our spring continues to unfold into our brief summer, please give us a thought while driving, and take a little extra care looking for us! We’re not all wheelie popping head bangers on crotch rockets ripping up the roads. Some of us are quite harmless old papas just out enjoying a leisurely ride on a sunny spring day. My grandchildren will thank you if you watch out for me in your travels.

Are you getting ready for Convention? I’m excited this year and will be presenting an interesting topic for discussion at the Broker Town Hall. If you haven’t got yourself booked in yet, get yourself on the IBAA website and do it now!

Keep those ideas for discussion coming. My private email address is thom.young@landy.ca and you can get me on twitter @Thomcat04. Some of you have found me on LinkedIn and Facebook too.

The opinions expressed in this blog are not necessarily those of IBAA.
Comment on this post below or email Thom Young privately. Thom also encourages suggestions for topics.

 

Tags:  Alberta Insurance Council  Bank Act  banks marketing insurance  disciplinary website  insurance licence  motorcycle  travel insurance 

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