IBAO reacts to possibility of credit unions selling insurance

Ontario’s broker association is keeping a close eye on a provincial government proposal to relax restrictions on credit unions selling insurance in branches.

“We believe there is a public consultation that is going to take place in 2021, so we will wait and see what the details are,” Colin Simpson, CEO of the Insurance Brokers Association of Ontario, said in an interview Wednesday.

He was commenting on the budget document released Nov.5, in which the Ontario government says it is proposing to allow credit unions to sell insurance in their branch and online through a subsidiary or partnership.

For years, broker associations have opposed the concept of banks or credit unions selling insurance to consumers at the point of granting credit. The thinking is that insurance should be sold by a qualified insurance professional rather than someone who is in the business of loans. Also, brokers are concerned that a consumer applying for credit might feel pressure to purchase insurance from the lender for fear of not qualifying for the loan.

For the past two decades, every five years, each time the federal Bank Act has been renewed, the Insurance Brokers Association of Canada (IBAC) has successfully advocated for the federal government to maintain prohibitions in the federal legislation against banks selling insurance at the point of sale.

Right now, the Ontario Credit Unions and Caisses Populaires Act essentially prohibits credit unions from selling home or auto insurance in their branches. They may only sell 10 different lines of insurance, including travel, mortgage and various creditors’ coverages.

One the one hand, IBAO acknowledges that it is expensive for a small credit union to have to open up a separate branch if it wants to sell insurance. On the other hand, brokers’ associations have traditionally opposed the concept of selling insurance at the point of granting credit.

“It is not whether we agree or disagree with what they are doing,” said Simpson. “A lot of the credit unions operate in small communities, so to enforce having to have two separate locations – if that is what they choose to do – becomes cost-prohibitive. So we understand that.”

“We have no problem with they are doing at this particular time [i.e. selling insurance from a location separate from where they grant credit], with a watchful eye on what other impacts it will have,” said Simpson.

“The concern would be around tied selling or selling insurance at the point of issuing credit. Is that in favour of the consumer? We disagree with that. However, we have been given assurances by the government that those rules are not changing. However, like everything else, the legislation and regulation still has to be written.”

Section 176 (1) of the Ontario Credit Unions and Caisses Populaires Act says: “A credit union may undertake the business of insurance or act as an agent for any person in placing insurance only to the extent permitted by the regulations.”

Ontario Regulation 237/09 states the only lines of insurance that credit unions may sell in their branches are:

• Insurance related to a credit card or charge card issued by the credit union.
• Creditors’ disability
• Creditors’ life
• Creditors’ insurance for loss of employment.
• Creditors’ vehicle inventory
• Export credit
• Group accident and sickness
• Group life
• Mortgage; and
• Travel insurance.

Feature image via iStock.com/sshepard