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Will RBC Leave P&C Insurance or Just Whine about Fair Marketplace Competition? Does Digital Imaging Impact Privacy?

Posted By Thom Young, March 23, 2015

RBC Leaving P&C Insurance?


I suppose it is a good day for the insurance industry when we hear a bank executive whining about how difficult it is to compete in the Canadian insurance marketplace. Of course the banks are not really complaining about the competitive nature of the insurance industry but are whining about the rules and regulations that limit their abilities to cross-sell the insurance product to their clients and use their incredibly extensive distribution system to promote their insurance products.

In a recent interview, David McKay (CEO of the Royal Bank of Canada) is quoted as lamenting the returns on the bank’s Property and Casualty insurance sales, citing the regulatory environment as a troubling factor that does not allow banks to sell their services out of their branches. It is a familiar spin on the issue—somehow the banks’ inability to do good things for their customers is a disservice to the buying public. A cynical person might observe that the public commentary by one of Canada’s senior bankers is simply a positioning play in the ongoing lobbying efforts by the banking industry to change the rules that make them play fair in the marketplace.

Mr. McKay has an unusual background in the senior ranks of Canadian schedule-A bank executives. He’s the only one who has come to his position of authority from a background in personal banking services. Most rise through the ranks on the commercial side of things and read reports about such things as insurance products. This fellow has an intimate knowledge on how the competitive process works and certainly a really good handle on how to maximize the economies of scale in their distribution system. Being forced to separate the marketing and service aspects of the insurance line from their multi-line product marketing approach is clearly a problem for them. He expresses the possibility that the bank may cut and run from the P&C market but stay well entrenched in the Life side of things—such as creditor life coverage and health-coverage extensions in their credit card product.

Most of their Life products are sold from their branches and by bank officers because “creditor life” products are exempt from the restrictions against marketing alongside other bank services, and the bank officers who are “selling” these products do not require a license. These exemptions get the bank into an inter-jurisdictional role on regulations. You see, people in a position of influence on the outcome of an insurance sale aren’t allowed to have a Provincial insurance license because the regulations believe that their authority over the individual buying insurance is considered to be prejudicial to the transaction. Bank officers fall into this category and for good reason. If you’ve acquired a mortgage or loan directly through a bank, you’ll come to understand the why of this when the mortgage insurance is offered in the transaction. To avoid purchasing the insurance, a serious discussion ensues with the mortgage officer, and signatures are required on several waivers before proceeding with the mortgage. Further, if the bank insists on the life insurance as a security covenant for the loan, you are at risk of not getting the financing you are requesting. The inference that the bank officer wants you to purchase the bank’s mortgage insurance product and the pressure to purchase this insurance from the bank is, in my view, unfair. Still, it happens every day and perhaps is why this product is so profitable to the banks.

The banks have disrupted our marketplace over the years. CIBC and the Bank of Nova Scotia both “cut and run” from the direct sales of P&C insurance after poor returns. Their impact on the Canadian marketplace could not have been measured as a positive one from the consumer’s point of view, but CSRs may have enjoyed the increase in baseline salaries that came about by this new competitor for market share. Certainly, as a brokerage owner, competing for staff at these higher salaries wasn’t in the budgets initially, and disruption of the industry was clearly evident for us. The banking industry is functionally driven by results. There’s no patience for under-performance, and success is measured by the target of a business plan that is measured every quarter. It always gave me comfort as an ex-banker to know that every three months someone was answering questions at a board meeting about the returns on funds employed in the Property and Casualty business. The excuse that the regulations are hampering the business plans would begin to wear thin very quickly. Competitive pressure mounted at those board meetings as some banks were able to make the program work. If in fact the Royal Bank is considering leaving the marketplace for P&C insurance, we shouldn’t see this move entirely as a win for our industry. Our point should continue to be that the Canadian public continue to be served by a very competitive insurance marketplace where the industry companies compete fairly with each other to the benefit of the consumer. The regulations for fair competition in this industry seem to be working to ensure that in the end the consumer remains the winner. The withdrawal of one competitor for whatever reason will not have any adverse effects on the consumer or provide a windfall for any insurer. With or without the Royal Bank of Canada, the marketplace for the distribution of P&C products remains healthy in Canada!

The only advice I might give to Mr. McKay is to take care the door doesn’t catch him on the backside on his way out!

So What Is a Reasonable Expectation of Privacy?

I had a commercial client who many years ago developed a service that kept track of rolling stock for municipalities. The service used geographic positioning satellites (GPS) data to track the location of equipment. The technology seems pretty routine these days with all the standard GPS stuff built into cell phones, computers, and almost all new-model automobiles and trucks, but back then it was a new world of information processing. Analyzing the data produced improved many efficiencies and security for the municipal authorities using the service. However, the benefits of this service were not well received by many of the employees who were soon to discover their whereabouts were no longer in any doubt. I remember several grievances were filed against one city by employees who held onto the belief that their privacy was being violated by this kind of scrutiny after several of them had been caught in some compromising lies about their locations. In the end, it was determined that their privacy was not violated since they were using their employee vehicles. Still, the spectre of big brother played out in the media and in the coffee rooms.

security cameraThe debate about privacy continues to take on new dimensions with the development of modern surveillance equipment and the ability of data mining software to analyze the data gathered. Without getting too deep on the technical side of things, most of us should readily perceive that much of what we do these days is digitally recorded by cameras in the community. Walking into a shopping mall creates a digital image of every individual and, with computer software, an operator can track your movements through the mall, the time you entered and left, and even the stores you visited. Do they have the right to do this? No laws prohibit the gathering of information in such a manner. As long as the information is not used to violate your legal right to privacy, your public activities are free for the review of anyone interested in gathering the data. Sounds kind of creepy, doesn’t it?

I was reading an interesting article about parking lot surveillance of automobiles. The idea of a parking lot attendant holding you up as you enter or leave a parking lot is long disappearing. Digital imaging software paired up with camera surveillance systems is now able to record your vehicle license information on entering the lot and match it to you in the exit queue, producing an invoice at the exit gate. Tap your credit card and away you go—a simple and easy process—but what happens to the data being collected to complete this transaction after you are done? Apparently, the vehicle data created by this software system is being pooled and made accessible for a fee to law enforcement and private contractors. The mining of this data is having great positive results in the recovery of stolen vehicles and finding fugitives hiding from the law. The private contractors who are looking for vehicles as security for loans in default and bailiff defaults are able to track the location of the vehicle and its occupant. Often, they are able to find this data before the vehicle leaves the parking lot it entered. A digital record of the vehicle license plate, driver, and the vehicle itself can all be made available for a fee. Apparently, you can run, but you really can’t hide anymore.

I have been polling friends on this topic, and the opinions I have received range from “If you got nothing to hide, then why would you care?” to “No one has any right to follow me around and no business sharing this information about me without my permission!” Watch for that sign at the parking lot entrance that disclaims responsibility for anything and advises you park at your own risk to expand to include a notice and disclaimer about surveillance. You have been warned.

In Closing

I am travelling again and find myself trying to get this project completed in between jaunts to exotic places. It’s always nice to find time to spend with the family or, as it goes now, for them to find time to spend with us! I received a number of notes on the last issue. A nice one was from someone who sends this on to her 80-year-old mother who looks forward to it. I am happy to see my work enjoyed.


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:  banks  competition  privacy  retail insurance  video surveillance 

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