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Committee proceeding on the possibility of the merger of Canadian Banks
Banking, Trade and Commerce
Monday, October 5, 1998
Browse the meeting proceedings on the official site of the committee
Senator Joyal: You stated in your brief that one of the major reasons put forward by the MacKay report in support of a recommendation that banks should be allowed to be active in that field was essentially because greater competition works in a better way for the interests of the consumers.
Can you describe how concentrated the insurance business that you represent is as an association?
Mr. Cooke: We have 230 licensed insurers operating in Canada from coast to coast. The largest insurer would have approximately 10 per cent market share. The second largest would be close to that and then it falls off very rapidly.
In terms of geographic area, the most concentrated part would be Atlantic Canada where, following some recent mergers of companies, four large companies might have as much as 45 per cent of that market, and then the market share falls off markedly.
Generally speaking, there is no dominant player in any line of business, in any part of the country, relative to the rest of the market. It is intensely competitive and non-concentrated.
Senator Joyal: Can you tell us how many of those companies might be in the hands of foreign owners, as opposed to Canadian-owned companies?
The commission seems to have established that there is a need for competition. I wish to know if the overall activities of this sector are concentrated in the hands of a few. Your brief does not touch on that point, which is elemental to the MacKay report.
Mr. George D. Anderson, President and Chief Executive Officer of the Insurance Bureau of Canadan: About 65 per cent of the companies competing in the marketplace are foreign-owned companies. There are about 70 Canadian wholly-owned companies in the property and casualty insurance market.
As many of you may know, we are organized on a global basis because of the function of reinsurance in our marketplace in order to bring global resources to bear when catastrophic situations occur. That was what we did, for example, during the recent ice storm in eastern Ontario and Quebec.
Mr. Cooke: In that structure, likely four of the top ten or eleven companies would be Canadian. The others would be European and American.
Senator Joyal: That was my next question. How many are American and how many are European?
Mr. Cooke: There is a substantially larger number of European than American companies, but certainly at least one of the top 10 companies is American in origin.
Senator Joyal: When you say that 70 per cent are Canadian-owned, what do you mean?
Mr. Anderson: No, I said that there are 70 wholly-owned Canadian companies.
Senator Joyal: Among those, what is the volume of activity?
Mr. Anderson: I would say about a third.
Mr. Cooke: Yes, about a third.
Senator Joyal: You mentioned in your brief on page 8 the announcement made by the Minister of Finance last week proclaiming the section of the Bank Act. You said that this amendment does not meet the conditions set out in the MacKay report. Can you expand on what you had in mind in that regard?
Senator Oliver: See the MacKay report, at page 211.
Mr. Cooke: We should note a couple of things. My understanding of the MacKay report is that it suggested that amendments be made to section 459.1 that would make it applicable to a much wider array of financial services, including all credit products, insurance and any other product or service that might be prescribed.
It continues and addresses items such as the development of a written notification statement to be given to customers prior to any financial services contract for the sale of insurance or the granting of credit. It also provides for legislation for appropriate remedies for tied selling breaches, including prosecution and private recourse through the proposed ombudsman and court systems. Civil remedies should include punitive damages. Suppliers and intermediaries are required to ensure that every salesperson is trained to avoid coercive tied selling practices. Financial institutions are encouraged to itemize and price separately the different components of a package of services; and all financial services legislation should have to enshrine the principle that financial services customers should be free from coercion.
It is my understanding that those particular items are not contemplated in the current section 459.1. Certainly, the way I would characterize the discussion around section 459.1, from the time it was introduced to the time it was passed, is as being somewhat tense in terms of the division and the positions that various people took.
Mr. MacKay is suggesting something that is much more comprehensive and which goes further than what is there today. I wish to make two points in this regard. First, we do not want it to be said that tied selling is taken care of, that we just proclaim 459.1, because it does not do what MacKay provisions. Second, I wish to point out his perception of the attempts to deal with tied selling and coercion.
In his report, Mr. MacKay observed that abstinence is not required. There is a point, after you place layer after layer of regulation on top of each other, that abstinence is required, and that is our point.
Senator Joyal: On the issue of tied selling, the MacKay report recommended that it be imposed not only on banks, but on all financial sectors. Would you be reluctant to be bound by the kind of regulations that you just outlined in terms of the subjects that were touched on by the MacKay recommendation?
Mr. Cooke: I have no difficulty whatsoever in any sort of progressive form of consumer protection activity, as long as it protects the consumer.
What is necessary is a balance between legislation that becomes unnecessarily invasive and hence puts costs, bureaucracy, time delays and the like in the system to no particular end. On the other hand, protecting consumer interests must be paramount. In order to force-fit a solution, which is not necessary in the first place, these layers and layers of legislation are being proposed. If you abstain, you do not have that problem.
Monday, October 5, 1998
Senator Joyal: I have the impression that the case of strong competition and best price for the customer has not totally been proved. If I look at the MacKay report recommendation and consider your comments, I come to the conclusion that you have not succeeded in convincing them. Perhaps all the facts and arguments are not yet overwhelming enough to convince everyone that the situation should remain as is.
I wish to ask a question of Mr. Ballard. Since the change in Quebec, the Caisses populaires Desjardins has more than 16 or 17 per cent of the market in Quebec. Some agencies have had to close and there was a net loss of jobs. Did you study the price that Desjardins has been offering to its customers? How do you define the price offered by the caisse populaire versus the price offered by the agencies? That is serious; 16 or 17 per cent is a reasonable section of the market.
Mr. Ballard: Senator Joyal, you live in the province of Quebec so you have probably heard their advertising. For a new homeowner, the price is zero; to compete with that we would have to write the customer a cheque. At renewal, the caisse populaire's rate increases to the point where they are in the middle of the pack.
Senator Joyal: What about casualty?
Mr. Ballard: They are in the middle of the pack for both home and automobile insurance.
Senator Joyal: In other words, can I say that it is not the best price in town?
Mr. Ballard: It is not the best price in town. At zero it is predatory.
Senator Joyal: We all know that. We were told that in the beginning they will lower their prices in order to gain a niche in the market, but I feel that any business that starts usually defines a period of time to find a niche, and after that it readjusts to the market price.
It is not that I am not sympathetic to your argument. I tried to understand the best elements of your argument so that it would be totally convincing and, as you realize, some of us still have some questions about your arguments. I want to see if we are not giving the banks a stronger argument than the caisse populaires have if we allow them to sell on their own premises. This is one thing we should establish and, second, we need to determine how the system has worked for the caisse versus for you in terms of price for the consumers. We accept -- and the MacKay report accepts -- that there will be a loss of jobs at some point in time, and this is a social issue that must be dealt with.
The other issue raised by MacKay is the task force's conclusion that the consumer will be better served at the end of the exercise. I am saying that we in Quebec have had a partial experience of that. How does it fair? What is your conclusion? Is the consumer in Quebec better served now that he or she has access to a caisse populaire premium which is lower than the one you can afford?
This is the way I wish to try and understand your points.
Mr. Ballard: From 1987 on the caisse populaires could not sell insurance in their branches. They had to have a subsidiary company, which they did have. Now we have Bill 188, which will come into force later. That bill comprised 583 clauses and only 200 were studied, so there are over 250 left to study. We do not yet know what will happen in Quebec, because so many clauses remain to be passed.
Having said that, however, even if the caisses have $300 million of business, customer service has not improved because customers now go to the toll free line, and people in the different areas no longer receive the services of a broker when they have a claim. I would say that this bill has not improved that situation.
Mr. Tessier: To add to that, most of the examples that are given by the task force deal with life insurance and not with P and C. I quote from page 95, where it says that there is no "strong evidence" that those lower costs and distribution factors will be taken into account.
We are dealing with two different products here, life and P and C. That distinction needs to be made when you consider what is happening in Europe and what is happening elsewhere across Canada. The MacKay task force has not done a good job of doing that and of recognizing those differences.
Earlier I spoke to you about the limited powers that some institutions already have regarding the retailing of insurance, and I discussed how they treat their customers. Is that not an unfair competitive advantage? Is it not a disservice to consumers to bully them into buying products that they may not necessarily want or need, or that they may prefer to purchase elsewhere?
The question is, why are we putting them in the position that they risk not getting their loan or mortgage simply because they must sign on the dotted line? We have seen that in Europe.
For example, in Belgium, the banking institutions were actually scanning the cheques that their customers were sending to their broker or insurance company and then writing a letter to that client and saying, "Well, we can beat that price." That situation ended up being referred to one of the highest courts in that country. The court's ruling was in favour of the consumer in this case and the brokers brought this to the attention of the court.
That is an example of the things we are referring to when we talk about unfair competition. We do not mind competition, but we are not lab rats. We contribute to our communities and we are there. The P and C sector is very competitive. Why experiment with that when there are other priorities, such as lack of competition in the banking sector?