- Consulting with Canadians -

Insurance Brokers Association of Canada's Submission in Response to Finance Canada's Large Bank Mergers:

December 19, 2003

Mr. Gerry Salembier
Financial Sector Policy Branch
Department of Finance
L'Esplanade Laurier
140 O'Connor Street
Ottawa, Ontario
K1A 0G5

Dear Mr. Salembier,

Attached you will find the comments of the Insurance Brokers Association of Canada (IBAC) on your Department's Consultation Documents on Large Bank Mergers, and specifically on the issue of cross-pillar mergers involving large demutualized life insurance companies and large banks. IBAC thanks you and your Department for the opportunity to present our views on this important matter.

About IBAC

As you are probably aware, IBAC is the national trade organization that brings together and represents the 11 regional member associations of Property and Casualty (P&C) insurance brokers in Canada. These associations represent approximately 25,000 insurance brokers in virtually every community across the country. Most insurance brokerages have about 10 employees, and are therefore members of the small-to-medium-sized enterprise (SME) community.

Insurance brokers are the principal distribution channel for P&C insurance companies in Canada. P&C insurance primarily covers real estate, automobiles and other non-life assets. Brokers provide an array of risk-management services to their clients. Among other services, they arrange contracts of insurance with various insurers in order to protect the physical assets of their clients. Brokers also provide their clients with independent, unbiased advice in the selection of insurance coverage, interpret the legal complexities of insurance policies for them, and represent and assist them in dealing with the insurance company in the event of a claim.

The client base of brokers is very diverse, ranging from individual clients to large commercial accounts. It is also sizeable, as brokers write approximately 80 percent of personal and commercial insurance policies in the country. Brokers assign priority to the interests of their clients, and meeting their insurance needs.

Importance� of Federal Financial Services Sector Issues to IBAC

P&C insurance brokerages are provincially-regulated entities. Nevertheless, they have a large stake, and lengthy involvement in, federal reforms to the financial services sector. P&C brokers not only provide the services of federally-chartered insurance companies to consumers, but also compete directly with other insurance providers, including the insurance subsidiaries of chartered banks, and other entities that provide insurance services directly to the public without the use of intermediaries.

In addition to this existing competition, P&C brokers have actively lobbied the federal government to prohibit the entrance of chartered bank branches into the insurance marketplace. While our detailed arguments concerning this debate are well documented and will not be repeated here, our summary view is that the existing rules in this area benefit consumers by providing them with greater choice, and the P&C sector as a whole by maximizing competition.

The federal government continues to share our view on this issue. Indeed, the main consultation document clearly states that "the Government does not intend to consider changes to the insurance networking restrictions, which limit the ability of banks to sell insurance through their branch networks." We sincerely thank the federal government for continuing to support us on this matter, and for not reopening the insurance distribution debate in the consultations at hand.

About Cross-Pillar Mergers

While we understand that the issue of insurance distribution is not on the table at this time, we will simply state that a cross-pillar merger could pose a significant threat to P&C insurance brokers if the purpose or end result of such a merger was the distribution of life insurance products through bank branches.

While entities that currently distribute life insurance would certainly be the first to feel the effects of the possible distribution of their products through bank branches, we are deeply concerned about the precedent that such a move could set for the distribution of P&C insurance, and its effects on consumer choice and protection. Suffice it to say that we would likely vehemently disagree with any proposal to change or lift the existing insurance networking restrictions that would happen in conjunction with, or result from, a cross-pillar merger.

In the meantime, in accordance with your own consultation document, we strongly urge you not to consider any distribution arguments that may be presented as a reason to support, or as a potential benefit of, cross-pillar mergers. Should that situation change, we sincerely hope that you would undertake extensive consultations of the issue of the insurance distribution before approving any cross-pillar mergers. In that event, we would certainly be pleased to provide more detailed views on the issue of cross-pillar mergers.

IBAC thanks you and your Department for not reopening the insurance distribution debate of years past in the consultations at hand, and for the opportunity to participate in this exercise. Please do not hesitate to contact Francesca Iacurto, our Director of Public Affairs, if you have any questions, or would like to further discuss any matters raised in our submission. She can be reached by telephone at (613) 786-9937, by fax at (613) 232-9789, or by e-mail at fiacurto@ibac.ca.

Sincerely yours,

Ken Orr
President
c.c. Executive Committee
Board of Directors
Member Associations