Since the demise of the “four pillars” of the financial services industry, which left only the banks and the insurance companies standing, the Big Five banks have taken markedly different approaches to making inroads into insurance.
CIBC has done little to build its insurance presence and is championing “cross-pillar” mergers, reportedly with Manulife Financial Corp., should banks and insurance companies be allowed to unite. Royal Bank of Canada and TD Bank Financial Group have made various corporate acquisitions that, they say, add value to their product lines. The remaining few have ventured no further than offering a basic insurance product to their borrowing customers, such as creditor insurance and basic life.
As well, methods of distributing insurance products vary, depending on the extent of the bank’s involvement in the industry. While the Bank Act restricts banks from selling insurance in their branches, banks can market directly to customers through the mail and the Internet (and they all have done this to varying degrees), as long as they don’t target particular customer subsets, such as high net-worth clients in certain postal code areas. Some sell products through the insurance companies they have purchased, proprietary sales forces and, sometimes, through dual-licensed securities brokers.
Royal Bank started to develop its insurance strategy as soon as Ottawa changed the financial-sector rules. “Very early on, in 1992, Royal Bank became more aggressive than anybody in building [insurance] infrastructure,” says Jim Westlake, chairman and CEO of RBC Insurance in Mississauga, Ont. The company’s list of recent acquisitions confirm Westlake’s story. In early 2000, RBC Insurance bought the individual life and annuity business of Prudential of America Life Insurance Co. (Canada), in the process becoming the primary supplier to Toronto-based PPI Partners a national managing general agency that caters to high net-worth clients.
Later that year, RBC Insurance acquired a major U.S. insurer, Liberty Life Insurance Co., based in Greenville, S.C. Then, in the spring of 2003, it acquired Business Men’s Assurance Co. of America from Generali Group, which is based in Italy. Its most recent acquisition was Burlington, Ont.-based Provident Life and Accident Insurance Co., the Canadian subsidiary of UnumProvident Corp. of Chattanooga, Tenn.
Combining synergies
Westlake is not convinced cross-pillar mergers are the way to go, even if Ottawa eventually allows them. It makes better business sense for banks to merge, combining synergies, he says. Royal Bank’s strategy has been to build its insurance infrastructure, making acquisitions that are more “strategic” in nature. “They add to something we already do,” he says.
RBC Insurance has the most diverse set of insurance offerings, including life, health, travel, home, auto, reinsurance and creditor insurance to more than five million customers throughout North America. The company is the leader in selling creditor insurance. It’s also the recognized leader in bank-insurer travel insurance, which is offered predominately through travel agents.
RBC Insurance’s life and health products are distributed through more than 7,000 independent insurance brokers, financial planning firms and stock brokerages. They are also marketed directly through RBC Insurance’s Web site and sales force.
In the U.S., RBC Insurance provides life and health products through its securities dealer, RBC Dain Rauscher, and its U.S. banking operation, RBC Centura. The latter doesn’t suffer the same constraints against selling insurance that Canadian banks do.
One of the main areas in which RBC Insurance has a leg up on the other banks is in living benefits, grouped under health insurance at RBC. This includes disability insurance, critical illness and long-term care insurance. Disability is generally available to most Canadians through their employer benefit plans. CI is a more expensive product that involves a substantial one-time payout upon diagnosis of a serious illness such as cancer, stroke or heart attack. It is not usually available through employer plans.
RBC Insurance’s presence in this area of the industry was boosted when it acquired Provident. It is retaining Provident’s 646 Canadian employees, including the officers who have been running the operation, a decision that is respected by independent advisors.
Like Royal Bank, TD has been active in buying established insurance businesses. In November 2000, it bought the property and casualty division of Canada Life Financial Corp. (now a subsidiary of Great-West Life Assurance Co.). More recently, it bought Meloche Monnex, the largest direct-response property and casualty insurer in Canada, with about 3,000 personnel across the country, a portfolio of 1,300,000 policies and premium volume of $1.4 billion.