Martin’s “Wait and See” strategy

The insurance industry is applauding the federal government’s just released white paper outlining the future of financial services competition in Canada.

In line with insurer and broker demands, the government has blocked banks from retailing insurance through branches as well as dampening any immediate hopes they may have had in moving into the vehicle leasing business. However, the report, and Martin’s comments, do not go as far as permanently blocking bank entry into insurance and automobile leasing at a later date.

As such, marketwatchers say the federal government’s dealing with financial service competition has not moved in any particular direction. Essentially, the recommendations put forward by the MacKay Task Force last year have been put on hold, they note. Martin’s escape in settling the competition issue rests on the report’s observation that regulation against tied-selling by the banks has to be brought into place before any firm decisions can be made. As such, the insurance industry has won this round in the battle, but there will no doubt be many more before the final bell rings.

George Cooke, president of the Dominion Insurance Company of Canada and an active lobbyist on behalf of the insurance industry, says while the report did not rule out future debate on the issue, federal Finance Minister Paul Martin has demonstrated strong support for the industry. “[Martin] said that the way insurance products are distributed across Canada is through local communities, by people who are very much involved in the community — independent business both rural and urban. He said the government is not interested in disrupting this balance. What I think he has done in drawing this example is to say regulators will not be touching the p&c industry.”

It would appear the government has thrown its support behind the broker distribution model as well, Cooke says. “Independent business, local communities and jobs were all themes that came out of the paper. I don’t know if you’d ever get him [Martin] to say that he supports brokers over direct writers but he definitely does not seem inclined to give direct writers an advantage over the independent broker.”

George Anderson, president of the Insurance Bureau of Canada (IBC), notes the insurance industry might become more stable now that the six year debate is behind them. “Mr. Martin has done the right thing. The decision is a clear demonstration of the way our political system works for the benefit of Canadians and how Parliament rightly plays a critical role in the shaping of major public policy.”

Cooke, however, warns the industry must heed lessons taught by this struggle. “The message for p&c insurers is to be aware of consumer interests and the public policy framework behind business decisions. Not only do our consumers buy our products, but they also vote.” He believes the banks will eventually try revisiting the issue, but is pleased with the report. “Tonight I’m going to sleep well,” he jokes.