One major Canadian bank is reviewing its property and casualty insurance business, citing difficulties caused by domestic rules that ban banks from selling coverages in the branches.
Royal Bank of Canada’s Chief Executive Officer David McKay made the statement this week at an investor conference in New York, sponsored by the bank’s capital markets unit.
“We’re trying to decide which direction we go,” said McKay. “It’s a very volatile business. We’re under scale in property and casualty in the Canadian marketplace.”
The bank had opened its first insurance office in Toronto near a bank branch in 2005 in an effort to circumvent Canadian regulations that prohibit lenders from selling property, casualty and life policies from bank outlets – with the goal being to open 100 insurance offices adjacent to its branches.
The move begun almost a decade ago led to a showdown with Canada’s insurance brokers, drawing accusations that the banks were violating rules set up by Ottawa back in 1991.
However, McKay admitted to those gathered at the conference that the inability to sell in branches has made distribution of insurance products both costly and difficult – hinting that the bank is prepared to pull out of the P&C market soon.
“We’re not sure we’re going to be in that business for the long term,” said McKay.
Two thirds of the bank’s insurance profit in Canada is tied to mortgages and its credit card business.
Although not optimistic about the P&C space, the Royal Bank will remain “long term holders” of its life insurance business, said McKay.
