Proceedings of the Standing Senate Committee on
Banking, Trade and
Commerce
Issue 29 - Evidence - October 5, 1998
OTTAWA, Monday, October 5, 1998
The Standing Senate Committee on Banking, Trade and Commerce met this day at 5:00 p.m. to examine the present state of the financial system in Canada (Task Force on the Future of the Canadian Financial Services Sector).
Senator Michael Kirby (Chairman) in the Chair.
[English]
The Chairman: Senators, tonight we will hear from two groups of witnesses on our study of the MacKay report, the report into the future of the Canadian financial services sector. Our first witnesses tonight are from the Insurance Bureau of Canada and our second witnesses are from the Insurance Brokers Association of Canada. Please proceed.
Mr. George L. Cooke, Chair, Bank/Insurance Steering Committee of the Insurance Bureau of Canada: Honourable senators, we come before you today to address certain recommendations made in the report of the Task Force on the Future of the Canadian Financial Services Sector. I am accompanied by George Anderson, President and CEO of the Insurance Bureau of Canada. We are both very pleased to be with you.
Since its release a few weeks ago, the MacKay report has provoked a spirited, national conversation dominated by a few loud voices, those of the five large banks and the large insurance companies. Collectively and separately, they have expressed their full endorsement of the report and recommendations. Drowned out in the din, to some extent, are the fringe players -- small life insurance companies, trust companies, credit unions, large and small property and casualty insurers, insurance brokers and, of course, consumers.
Most importantly, I am here to share with you the perspective of a significant segment of this largely ignored constituency. In doing so, I wear four hats. First, I am President and Chief Executive Officer of the Dominion of Canada General Insurance Company, a 100 per cent Canadian-owned property and casualty insurer which distributes its products nationally through a network of independent brokers. Second, I am a Director of the Insurance Council of Canada and Chair of its banks and insurance company. Third, I am a transplanted northern Ontarian who has been known to chafe at the tendency of Bay Street to project its paternalistic single-mindedness on smaller communities that happen to be outside Toronto. Fourth, I am a consumer who is confused by the confusion that seems to permeate this debate. That is, what is good for me, what is bad for me, and who is looking out for my interests?
In all four roles, I am focused on the particular recommendation in the report which would permit banks to retail insurance products from their branches.
The task force members seem to have ignored the commitments made by Finance Minister Martin early in 1996 and the enthusiastic response he received from all members in the house. This radical, proposed change has been discussed soberly as the logical next step in the financial services sector. No big deal, they say. In my view, we are about to step on a landmine with our eyes wide open.
Before proceeding, let me note that I appeared before the MacKay task force and offered them some very simple views.
First, that the property and casualty industry was distinct. The task force accepted this proposition in its report, but it ignored it completely in its analysis and conclusions.
Second, that the bank branch retailing of property and casualty products will raise serious privacy and coercive tied selling issues. They accepted that proposition but wrongly, in our view, believed that these issues can be addressed satisfactorily through legislation.
Third, that if branch selling is permitted, it will lead to significant job loss for rural Canada, with all the attendant, negative local consequences. The task force completely ignored this concern.
Interestingly, our research indicates that 75 per cent of Canadians -- 85 per cent in Atlantic Canada -- do not support the sale of insurance through bank branches if it means that jobs in the insurance industry will be lost.
Why, then, is the life insurance industry apparently pleased with the report while the property and casualty industry is not? What is so different about the property and casualty market? For a start, approximately two-thirds of the products sold by property and casualty companies are required; that is, they are either mandated by provincial legislation -- such as automobile insurance -- or required by financial institutions. Try getting a mortgage without approval for a home insurance policy. This point is completely ignored by the task force. This market is onerously regulated under at least 10 different provincial statutes, and it is highly competitive. The special accommodations that this market has made to achieve public policy and political goals demand that drastic reform be undertaken with exceptional care.
Life insurance companies sell a different product, and, accordingly, the industry is less regulated. No one is required by law to buy life insurance. It is discretionary. Life companies carry more diversified products, including mortgages and segregated funds. These companies are excited about getting access to the Canada payment system. They want to be like the banks. We, the property and casualty companies, do not.
Across Canada, approximately 75 per cent of all property and casualty products are sold and serviced by the 60,000 people who are directly employed in the broker network. These brokers are trusted and respected members of their communities, working with customers throughout their lives to advise them in making the best informed decisions on very significant matters. Brokers and property and casualty companies work closely to deliver the best product suited to the community and consumer. This care has not gone unnoticed. In 1997, a national consumer survey on quality canvassed consumer opinion as to the quality of service provided by 21 industries. Automobile insurers were rated in the top third. Banks placed in the bottom third.
Let me be blunt. Market surveys consistently demonstrate that consumers do not like banks, but consumers do like brokers. They trust them to work and advise in their interests, not in the interests of large companies. They have confidence in their independence, and they know that the broker understands the community in which he works. He is part of it, linked to its economic future.
Curiously, the task force report notes the special nature of the property and casualty market, but again the research and analysis lumps us with the life industry, demonstrating a profound lack of understanding of the insurance market. Perhaps this is partially due to the fact that the property and casualty industry was not represented on the task force panel while other sectors of the financial services industry were.
I cannot help but conclude that the report strains to force-fit a foreign model for financial services, bancassurance, which has apparently worked well in Europe. In this model, the four pillars of this sector are deregulated so that any qualifying institution may sell a complete range of products. The analogy to Europe is less than perfect. Both France and the United Kingdom support more than 600 banks. There are 3600 in Germany and almost 10,000 in the United States. In the major European countries, the report's background paper notes that no more than 5 per cent of property and casualty insurance is sold through banks. The report seems to link the fact that banks have the power to sell insurance with automatically increased competition and better customer service. The subtext reads like this: No need to worry about banks taking over the property and casualty industry. Just look at Europe -- it has not happened there.
With all due respect, this is wrong. In such a dense market, European banks concentrate on competing in their core market, which is banking. They cannot afford to divert resources to develop a market in insurance through predatory pricing or some other means of subsidy. As a result, the property and casualty market is very diffused, notwithstanding bank entry.
The Canadian bank landscape is starkly different. We have five very big banks, for now. Canada is not Europe. European solutions cannot be imposed on the Canadian market.
As the committee is well aware, banks have been permitted to sell insurance through a separate company since 1992. What they have not yet been given, for good reason, is the unfettered right to do so through their branches, or to access and segment banking customer lists. Why not? As the report cautions, banks have been known to engage in the practice of coercive tied selling. This, the report claims, must be legislated out of existence.
No longer will a bank be able to make a mortgage or loan approval contingent on the customer's purchase of another financial product. Breathe easy? Not quite. There are, of course, shades of tied selling. According to the task force's polling, 16 per cent of the respondents say they have been subjected to coercive tactics like this. Move your RRSP portfolio over, and then we will talk further about that mortgage. Until then I am afraid I cannot help you. If that is not coercive, then what is it? If that is not tied selling, then what is it?
In our view, it is not possible or practical to legislate every permutation out of existence. Let me offer a timely example. Section 459.1 of the Bank Act is intended to prohibit tied selling by banks, and just last week it was finally proclaimed, after some vigorous and lengthy discussion. This amendment does not meet the conditions set out in the MacKay report.
What else will happen if banks sell insurance directly from their branches? I suggest they will be handed an open invitation into the private life of every Canadian who has ever opened a bank account, bought a home, applied for a loan or invested in a retirement plan. Banks have amassed and have access to a bounty of confidential information about your credit, medical, employment and personal history. They will be free to use it to their commercial advantage and with impunity. A bank may consider such information when accessing the risk profile of a potential customer. Without access to the same information pool, insurers are being invited to sell or go bankrupt. Banks are provided sensitive personal information for specific purposes. Canadians would be loathe, I believe, to allow the disclosure of such private data for the commercial advantage of big banks. In fact, market research confirms my hunch.
The report suggests that concerns about privacy can be addressed by adopting Quebec's Bill 188. I suggest that this is a losing undertaking -- it takes us down the road of confusing and time consuming Byzantine regulations that are ultimately detrimental to consumers. If the major banks were to be given the expanded insurance powers proposed by the task force, our estimate suggests that well over 20,000 jobs across Canada would be lost in the property and casualty insurance industry. The bulk of these jobs would be among independent insurance brokers located in small towns and cities all across Canada. In all likelihood, insurance jobs created by the banks would be located almost exclusively in the major urban centres and possibly outside of Canada. The burden of this dislocation would fall disproportionately on non-urban areas. Yet nowhere in its 250-page report, its 5 background papers and 18 studies did the task force analyze the employment impact of its insurance retailing recommendation. Page 96 of the report notes, in passing, that some existing jobs may well be lost.
If the regime recommended in the report is implemented, it will not take long before brokers shut down their businesses, unable to compete with the five or three large banks. With the demise of brokers will go the smaller property and casualty insurers, a fiercely competitive industry of 230 companies which currently employees approximately 100,000 people in Canada.
Banks solicitously assure us that we have nothing to fear -- this is all being undertaken in the name of competition, consumer protection and the economic well-being of Canada. With all due respect, the banks have a dismal record when it comes to addressing consumer and small business issues. They have done little to earn public trust and confidence. The public is not at all inclined to accept their hollow and self-serving reassurances, and it is right. Competition will not be enhanced. Market share will become very concentrated. My home town of Haileybury is north of North Bay, and has a population of 2,500. It currently supports two brokers and one bank, but chances are that there will soon be one choice, if they are lucky, and it will be a bank. So much for enhanced competition.
One must ask why the task force offers this ringing endorsement of bank retailing of insurance. Why does the task force so cavalierly dismiss the Canadian property and casualty industry? The report purports to favour competitive markets and presumably the appropriate economic and legislative conditions. Then why does it recommend additional layers of regulation? With a highly concentrated market, what good will tied selling legislation do? If competition is reduced, the consumer is left with little choice. Coercion will be a market reality. Why hail Quebec's Bill 188, a thicket of rules still not figured out by those who must use them? Why hail that as a panacea? Remember, this particular legislation was publicly opposed by virtually every consumer group in Quebec. One cannot help but sit back and wonder who or what, other than the banks, will benefit if this recommendation is adopted.
The message I bring to you is urgent and I fear that it may be lost in the excited debate around bank mergers. At the same time, the property and casualty industry does not want to become a consolation prize. We will not serve ourselves up willingly as an appetizer at the sumptuous banquet table of the Canadian banks. Property and casualty insurance does not grip the imagination of the Canadian public or the media, but job losses do, invasion of privacy does, coercion does, and more powerful banks do. Canadians are afraid and they should be.
Canadians are left with a report from a task force that ignores its own conclusion that property and casualty insurance is distinct. It glibly dismisses job loss, job dislocation, and economic hardship in rural communities. It naively believes that protection of privacy and a prohibition on coercive behaviour can be adequately controlled by legislation, regulation, and other enforcement mechanisms. It misleads all readers as to consumers' attitudes by relying upon public opinion research that is very vulnerable to serious challenge. All this we are told is intended to benefit the consumer.
In the coming days, weeks and months, I and other members of this industry will continue to work actively to have our concerns heard. It is that important for our industry, for consumers and for this country.
I am pleased to take any questions you may have.
The Chairman: In fairness to the task force, I do need to clarify the points you make on the bottom of page 2, and the tone which permeates your opening statement where you say:
The task force members seem to have ignored the commitments made by the Minister of Finance in early 1996.
The terms of reference of the task force did not include looking at existing policy. Rather, they were told to look at what the future of the industry ought to be. In their terms of reference, they were explicitly told that they should feel free to comment on any changes that might be required in any area of the financial services sector, and that they were not to be bound by any existing policy or statement. I feel that to criticize them because they happen to have changed a policy that you do not like, and to argue that they should not have changed it simply because it was an existing policy would serve no purpose.
I am not arguing that you should not disagree with their conclusion, I am only arguing that to criticize them for having proposed a change is counter to the entire purpose for which the task force was set up in the first place.
Mr. Cooke: May I clarify my comment?
I concede the point you are making quite willingly, however, I believe that the currency of the particular statement made by the minister -- and I doubt it was made lightly -- is in stark contrast with the lack of material found in the task force report around this particular industry. Perhaps my choice of words was less than appropriate and I willingly concede that. I still believe that the flavour is somewhat relevant, however.
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.
Senator Oliver: I will return to Senator Joyal's first question of who actually owns these property and casualty companies.
In the task force report, MacKay does not just talk about mergers as the solution, he also spoke about strategic alliances. In your speech, you did not talk about strategic alliances. Apparently some people believe that it is highly unlikely that Canada's banks will make a run at companies in the property and casualty insurance business. This is due to the fact that many of the insurance companies with the largest market share are foreign-based, deep-pocketed insurance companies that have better access to capital than Canadian banks. Rather, the banks are likely to form strategic alliances, such as the Royal Bank with The Co-operators. Do you believe that the task force makes it easier for the banks to form strategic alliances with property and casualty companies?
Mr. Cooke: I am not sure if it makes it easier or not. I am not sure that there is anything today that prevents strategic alliances, depending how you define that term. There is an arrangement that could easily be orchestrated where a network of independent brokers distributed bank products such as mortgages, GICs and mutual funds. I am not sure that the task force becomes necessary in that regard.
To return to the competition point, ING has less than 10 per cent of the Canadian property and casualty market.
Senator Oliver: How big is ING in the world?
Mr. Cooke: It is huge in the world, but it is not particularly large in Canada today. It is not the size of the bank that is problematic. We can compete quite acceptably today with ING or with State Farm, to pick on a large American company. The issue here is that the access to information of these other institutions and their ability to direct customers confers an unfair advantage. It is our view that Canadian banks would have an unfair advantage against foreign participants in the property and casualty industry as well. I am not presenting a nationalist thrust today.
Senator Oliver: In response to my question you said that you are not sure that the task force is needed in order for banks to have strategic alliances. If it is not needed and if they can have them now, how can you possibly talk about privacy and tied selling if it is something that can be done under the present legislation?
Mr. Cooke: To step back, I will define "strategic alliance" as I am using it. If I wanted to work out a deal with one of the banks to make MasterCard available through an independent broker to home-owner insurers, not all the product would be coming from the same institution. There would be an alliance with products from three institutions, for example, presumably put together by someone who was independent, local, and truly acting in the consumers' interests.
I think that what is being contemplated in the task force is a quite different convergence of arrangements.
Senator Oliver: The second question Senator Joyal asked was about privacy. You make some very strong statements about privacy on pages 3 and 8. On page 3, you say that "bank branch retailing of P and C products will raise very serious privacy and coercive tied selling issues." On page 8, you state that "banks have amassed, and have access to, a bounty of confidential information about your credit, medical, employment and personal history."
We have asked a number of questions of the Canadian Bankers Association about the MacKay task force recommendations on privacy and, for the most part, the banks are prepared to live with them. In response to Senator Joyal, you said that the passing of section 459.1 does not go far enough for you. However, the MacKay task force report says that the act should be proclaimed with amendments that broaden its scope, including consideration of some of the things which you enumerated.
What is wrong with what the task force recommends with respect to privacy? Where would you change it? What would you add to it?
Mr. Cooke: I would add nothing to it. First, I did not say that section 459.1 went far enough for me. I did offer a view on that. I was trying to point out that section 459.1 was not what the MacKay report recommended; that there are differences between the law as it now exists and what the MacKay report is recommends.
Senator Oliver: There is no question about that.
Mr. Cooke: That is my point, and it is important.
Senator Oliver: That amendment was drafted before the release of the MacKay task force report. Now we have the task force report with some excellent new recommendations with respect to privacy. What do you say about these?
Mr. Cooke: I say two things about them. First, if there is no good reason for changing a situation where that kind of invasive legislation does not need to exist, why are we doing it? In other words, if we do have a competitive, healthy, vibrant, consumer-oriented environment today where consumers are well served and happy, why add all this legislation?
Second, I would like to explain how difficult this whole area is. Unless you can find a way to completely separate all that information from the human being who is ultimately involved in the transaction, I believe that it is legislatively impossible to have the full protection that one needs. I say this because an underwriting decision is a decision to accept or reject a risk. A classification decision looks at many things.
Let us, as an example, consider auto insurance. Factors in that decision would include the type of car you drive and your driving record. You can say that you cannot use credit rating data or health records when engaged in classification. However, if I have had access to personal information, you will never know whether I have used it in an underwriting decision. It is not recorded. The answer is simply yes or no. It is a free market. People do not have to accept risks.
It becomes dangerous when the very people who have access to information obtained for purpose A can make or influence decisions about item B and it need never be recorded.
What is wrong with keeping it the way it is today? I do not say that because I am afraid of competition on a level basis, but because the cost of getting that competition on a level basis is good neither for consumers nor for our economy.
Mr. Anderson: If I may add another point of concern, we are not sitting here in isolation talking about privacy legislation. Ten other jurisdictions in Canada are also anxious to demonstrate concern for consumers by passing privacy legislation. If these efforts go ahead uncoordinated, we will have a mess on our hands, and we have not had great success with harmonizing this type of effort in Canada lately. We have good intentions, but we are contemplating a process which could be very difficult to carry out at the end of the day.
Senator Oliver: That is something that this committee can keep in mind when it comes to making its own recommendations. That is very helpful.
Mr. Anderson: When I last appeared before this committee on this very subject -- which I know is of great interest to everyone -- we inquired about the number of complaints from citizens about the use of personal information in the property and casualty industry. To our knowledge, there have not been any. We have a voluntary code. In fact, we have the first code developed under the new Canadian Standards Association 10-point model. We think that will work well. You must remember that if it came to light that companies in a competitive business were misusing personal information, they would lose customers. I believe that that is what keeps many companies in our business on the straight and narrow.
Senator Kolber: Did you say in your opening remarks that the life insurance companies were happy with the MacKay report?
Mr. Cooke: They are certainly happier, although that depends upon whom you consider to be their spokesman. On the first day of the media flurry, I saw a number of representatives who certainly looked much happier than I felt.
Senator Kolber: That is hardly proof of anything. I have spoken to some top life insurance company executives who were at least as unhappy about it as you are.
Mr. Cooke: You may be have more knowledge about this than I do, but I am not aware of any large life insurer coming out against the retailing issue or the issues that we have raised today.
Senator Kolber: They will, believe me.
Mr. Cooke: We would welcome that. It is lonely over here.
Senator Kolber: Would you distinguish between giving the banks the power to sell whole life insurance products, which have an important element of savings to them, and allowing them to sell term life and property and casualty insurance?
Mr. Cooke: I would not lump property and casualty insurance with either life product.
Senator Kolber: Not even with term life?
Mr. Cooke: No.
Senator Kolber: You would like to keep property and casualty apart from anything to do with life.
Mr. Cooke: I personally strongly believe that P and C is distinct from life insurance for a whole variety of reasons and should not be lumped with either term or whole life insurance. I would not favour allowing banks to deal with whole life insurance either, but I am certainly not going to fall on that sword if I can help it. We will argue our own case, which I think is an easier argument. The property and casualty product is radically different. It does not resemble anything that banks would currently sell through their branches.
Senator Kolber: Do you actually think your case is easier?
Mr. Cooke: I hope it is.
Senator Kolber: Both cases are rather easy, in my opinion.
Mr. Cooke: I do not want to push that aside. I welcome that, too.
Senator Kolber: The task force report claims that removing the restrictions on the sale of insurance products "will give consumers greater choice in their selection of insurance and automobile leasing products. Greater competition could also lead to more innovation in product design and distribution and to lower prices."
Mr. Cooke: It is absolute nonsense to reach that conclusion. Undoubtedly, it will lead to less competition, more concentration and job losses.
I cannot fathom what the innovation point is all about. We have banks that have been selling insurance since 1992 in this country, and for longer than that elsewhere. If there is any innovation to be had because of their involvement, we would have seen it. We can point out that it is not unusual today to see P and C companies selling their technology to the banks so that the banks can compete with us.
I have a difficult time accepting that conclusion as having any merit whatsoever.
Senator Kolber: Are you saying that the insurance industry is doing a good enough job already?
Mr. Cooke: Any industry can always do better. We certainly strive to do better. However, from the point of view of customer satisfaction, the property and casualty industry is doing a good job.
We are currently working on things that will lead to improvement. Generally speaking, customers are satisfied with the service that they receive from our industry.
Senator Di Nino: When you talk about job losses, are you talking about job losses within the companies or within the brokerages, or both?
Mr. Cooke: It is both. However, the impact will be disproportionately felt by the brokers.
The non-urban areas are the most vulnerable ones. Today, our company distributes all of its product through brokers. Generally speaking, our decisions about communities are made in those communities, either by or in connection with the brokers who work on our behalf. As I see it, those are the people who will be most susceptible to job loss under this particular framework.
Clearly, if the distribution network loses jobs, then someone in a manufacturing plant will lose his or her job, too.
Senator Di Nino: You said that something in the order of 60,000 people work in your industry today.
Mr. Cooke: There are 60,000 brokers, and 100,000 employees in the industry.
Senator Di Nino: Are you saying, then, that of the 100,000, 20 per cent would lose their jobs?
Mr. Cooke: That is correct.
Senator Di Nino: The banking industry has made tremendous advances in technology in the last two decades or so. It is often suggested that one can arrange a loan via computer or over the telephone. You made no comment about how that may be reflected on the sale of insurance products, as least as concerns P and C.
Mr. Cooke: Today, if a consumer wants, he or she can buy a property and casualty product over the Internet or over the telephone. There is absolutely no end to the choices that consumers have today.
This is something which is quite different from the European experience. Whether that is because it has happened more slowly here, or it has been more measured, or whether it is because of delays, I am not sure. A consumer can buy insurance in the conventional way, which would be face-to-face with a broker, or through a call centre operated by a bank, or through a direct writer or a broker. He or she can buy it on the Internet from a broker a direct writer. I am sure it can also be done by mail, if there is someone out there who is doing it.
There is no end to the consumer choices available. No one has the monopoly on technology. It is available to everyone in this business.
From a competitive or consumer service point of view, the industry is unfolding reasonable well in this country, without ever having hit bancassurance. I suspect that, some day, someone in Europe will look over here and say, "Maybe the colony got it a little better than we did."
Senator Di Nino: One of the comments that struck a chord with me was the fact that many small towns would lose part of their lifestyle. They would lose a broker, or both brokers, as is the case in Haileybury. Will this not happen with technology?
Mr. Cooke: It might, but it does not have to happen.
As long as there are a large number of companies competing against each other, and as long as those companies are willing to offer consumers some choice, then some of that choice can prevail. There is no question that our landscape is changing. More insurance bought is being purchased in different ways today than was the case two or three years ago. If this continues to progress, it will progress in a measured, tempered way, rather than a radically exaggerated and perhaps unnecessarily fast way.
Very large institutions have an advantage by virtue of what they are and what else they do, and if they come into this then you will not have as much choice. On the job loss side, you will likely be replacing the person in the local community with a call centre clerk somewhere else.
Will some of that happen today? It likely has happened. However, it will be something that will come in transitions rather than something that is extreme.
Senator Di Nino: The banks have been competing with you now for about six or seven years, is that correct?
Mr. Cooke: Yes, since 1992.
Senator Di Nino: What impact has that had on your industry?
Mr. Cooke: It has been marginal. CIBC is present in at least a couple of provinces, and has no market share to speak of.
The Royal Bank made an aborted attempt and just recently this past year it started to sell insurance in Ontario, with virtually no market share on the P and C side.
The Bank of Nova Scotia has an arrangement with Canada Life Casualty for sales in Alberta. I do not think they are in Ontario yet. Again, that has had no particularly measured impact.
The Hong Kong Bank has under-priced products considerably and wreaked havoc in the British Columbia market, operating at close to a 250 per cent loss ratio as I understand it. I am not sure that is good for anybody in the long term.
Generally speaking, the TD Bank and Bank of Montreal are out of it. They have every opportunity to be there today if they want to be.
Senator Di Nino: If the present regime were to continue; that is, banks owning insurance companies, that would not disturb you. What disturbs you, I understand, is the ability of banks to sell the products that you sell through their branch network, is that correct?
Mr. Cooke: That is correct. We would have no quarrel if the situation we have today were to continue. We are not afraid of competition. We thrive on it. We do better because of it. What we are worried about is that quite unintentionally, through changes, some part of the new community will have a distinct advantage over other parts, and this would tend to concentrate and lessen consumer options.
This is not a posture where we are trying to get rid of competition -- we are trying to keep it.
Senator Kenny: You have said that you are a little like David up against Goliath. I was struck by the phrase on page 5 of your presentation where you talked about consumers really liking brokers, how they trust them and how they have confidence in them and not in large companies. They like the independence. It is a very interesting paragraph.
You then went on describe all of the information that banks had, and said that it is unfair for them to use it. How do you compare that to the trust and the on-site knowledge that your brokers have? In one case, the banks are dealing with statistics and figures, while in another case, the brokers that you are discussing are probably scout leaders and involved in the community in a variety of ways and have a pretty good fix on what the customers' needs are. Why are you so disadvantaged, if that is the case?
Mr. Cooke: First, I am not trying to suggest for a moment that first-hand, personalized knowledge of a risk is not an advantage as compared to a more distant, less comprehensive understanding of a person.
To be fair, that really is the difference between underwriting in its purest sense, which is an accept-or-reject call, and classification, which is using the non-prohibitive pieces of information you are allowed to have for purposes of deciding whether you want the risk or not. They are quite different, and there is no question that local knowledge has value. It is one of the reasons why we operate the way we do.
Even with our most intimate friends, we are unaware of some of their medical circumstances. We certainly would not necessarily be aware of their financial circumstances.
We would not -- I would hope -- be in any way inclined to use that information in an untoward way. While one of the most powerful predictors of the likelihood of having an accident and making a claim is credit history, we are prohibited from using that information for the purposes of underwriting a rating.
The Chairman: I am troubled by many of the same points raised by Senators Di Nino and Kenny.
I am not sure I would describe this as an inconsistency, but certainly there is an element of painting a bogeyman in your position. On the one hand you concede, which I believe to be true, as Senator Kenny quoted you, that consumers really like brokers and do not like bankers. Anyone who has been in the market research business understands that that kind of personal relationship is a key driver in purchasing any service. I would have thought that, from your point of view, having an institution that consumers, according to your data, do not like, would not pose much of a threat to you at all, frankly. I am bothered by that inconsistency.
I would like to clarify one point about the health issue, since you keep bringing it up. The reality is that in any discussion, including in the MacKay report, that health data would not be available. That has been clearly understood, ever since even the selling of life insurance by deposit-taking institutions has been discussed around the country, for 20 years. Using that as one of your bogeymen is kind of a false argument.
Like Senator Kenny, I am troubled not just by the extreme nature of your statement but also by the way you seem to draw extreme conclusions in contrast with the some of the existing data statements in your report.
Mr. Cooke: I make the statements in an extreme way because I want people to focus on them. In my view, to this point, we have not focused on them. If I achieve nothing other than getting your attention, I have at least achieved some of what I am trying to do.
One has to understand that when a person is buying property and casualty products -- home insurance or car insurance -- the most dominant purchase characteristic is price. All things being equal, they would rather buy it from a broker whom they know than from a bank, but it is price that is important. The second characteristic that could apply has to do with other products, or other relationships, such as the RRSP, the mortgage, whatever it might be.
My point here is not to try to suggest that we have an advantage or do not have an advantage over this particular kind of information. I would suggest to you that, when you have extensive databases, an underwriting decision is a lot more controlled and easily manipulated than when you have a series of ad hoc, less complete pieces of information scattered across the geography of Canada. What I really want to suggest is that the fear here on the privacy side is from a consumer orientation in terms of the way it would be used, or credit rating which I cannot access and the bank can. Even though the bank cannot be seen to be using it, it has it and it would know it. Contrast that with the dominance that a large institution can have through cross-subsidy, through a variety of other things when it can get in here and make all the economics work. It has not happened in Europe because their banking situation is intensely competitive, unlike ours. Surely you are not going to suggest that our banking circumstance here is competitive.
The Chairman: I was not trying to suggest anything. I was just commenting on the extreme nature of your report, which you have conceded.
Mr. Anderson: When you talk about the banks' ability to serve customers, they have a lever that very few other institutions have, and that is the ability to offer credit, and approve loans and mortgages.
There will be people coming up after us who will tell you about situations which perhaps were not tied selling under the strict definition of the law, but in which they nevertheless lost business. For, in order to qualify for a mortgage or a loan, the institution wanted to have a wider relationship with the customer. That is the way it is put. "Yes, we can process this, but we have no relationship with you. If we held your RRSP or something else," or in this case, "your property and casualty insurance policy, that would help with the credit committee." That conversation goes on in Canada every day in hundreds of branches across the country, and it represents a force in the consumer's decision to buy, and that gives credit extenders unfair advantage over others.
I think there may be people sitting around this table who can remember when they were trying to get their first mortgage, and how they felt when they went into an institution and asked for credit for the first time. You can probably imagine how people would feel if, in fact, a banker said, "Well, that is good. We think you are a pretty good risk, but we would like you to have one or two more products with us." In fact, bank employees are given incentives to do this. That is where an enormous part of the unfair advantage comes, when you give banks these additional powers. They can use credit extension as a lever to cross-sell their other product lines. That is unfair.
Mr. Cooke: If you then have access to information like medical history or whatever it might be, to know whether you want that extra business or not, you have an unfair advantage.
Senator Kenny: It sounds a little like the guy who runs the tie rack store, who just sells ties, who gets upset with someone who walks into a department store and buys a tie and the store says, "How would you like to buy a shirt while you are getting the tie?" If the customer is willing, and if the customer sees an advantage, what is intrinsically wrong with that? Before you answer the question, are you not also assuming that customers cannot walk with their feet, that they are not prepared to walk out and go across the street? Are you not also assuming that customers are all dumb, I guess, and that they will be suckered in?
Mr. Cooke: I think your tie example actually trivializes the whole situation immensely. I would never suggest that customers are dumb. I would suggest that these products that people are purchasing and trying to sell are complicated. Often the sale is taking place at a very difficult time emotionally in somebody's life. You are buying your first home or car, as the case may be. You have to refinance and restructure because something in your business has gone wrong. These are times when, if the decisions are complicated enough in the first place, the customer is likely most vulnerable. The availability of good, competitive information in the marketplace, except for that which you can get by having a professional act on your behalf, is not very good. Governments have done a very bad job of trying to fill that role.
Senator Kenny: I am not saying that there are not situations that can be coercive, but I am asking you to concede that a customer might think that he or she is getting a better deal by picking up a series of products or by taking all their business to one company and saying, "I will give you my whole range of business if I get a better rate."
Mr. Anderson: There is nothing wrong with that. We are comfortable with that statement. The MacKay report states how surprised Mr. MacKay was at the percentage of customers who feel pressured in bank transactions, namely, 16 per cent.
Senator Kenny: Turn to page 211 and work us through recommendations 70 to 75, dealing with tied selling. Would you tell us which recommendations you are comfortable with and which ones you are not comfortable with?
Mr. Anderson: Our point of view is not about whether or not we support this set of recommendations.
Senator Kenny: But we are here to find out exactly that.
Mr. Anderson: In so far as this is concerned, I do not think it will make a lot of difference. The kind of relationship we are talking about cannot be entirely prevented by having broad-based legislation governing these transactions, because the line is very fine.
Although 16 per cent of those people complained that it happened under existing legislation governing these kinds of transactions, every banker denies that it occurs in their branches. I think they do it in good conscience, but all five of them will probably say that it does not happen. How many of those came forward to their Superintendent of Insurance and complained? Not many.
You cannot be satisfied that you have solved the problem by passing broad-based legislation. You can punish transgressors, but will you really get rid of this kind of behaviour when the incentive programs and the banks themselves encourage it?
Senator Kenny: Did I hear you say that recommendations 70 through 75 are irrelevant?
Mr. Anderson: I am not sure they will work.
Mr. Cooke: To say there is anything wrong with them, per se, forces you off into a place that you do not want to go. The minute you get into that, you are talking about how you will implement the MacKay report. We are saying, "Do not implement it."
Senator Kenny: You are saying that they are wrong. You do not want to do it.
Mr. Cooke: I do not want to do it because I think there is a better way. I am on the side of abstinence. He is saying, "Forget about abstinence. Let us put this stuff in place." If you are to put "stuff" in place, then this is a good way to do it. I think that is what you are trying to get me to say.
Senator Kenny: I am not trying to get you to say anything.
Mr. Cooke: Having said that, it does not solve the problem. I cannot understand why the MacKay report tries to define a problem that does not exist, namely, that we need lots of competition. We have lots of it today. If we need more, that is fine. We have this problem today with coercive tied selling, and so on. Therefore, we will legislate it out of existence. If you did not try to get these three new competitors into the industry in a different way than they are in today -- and I am not sure to what end -- you would not need to do what he is talking about here, because consumers are being well served today. If, by doing it, you will dislocate jobs all across the country, then what are we doing it for?
Is there anything wrong with his recommendations? No. We believe as strongly as anyone else in personal privacy and the protection of the consumer interest. I ask, however, to what end? This will not work.
Senator Kenny: You have talked a lot about banks. We are expecting to hear from some bank witnesses. I would welcome any questions that you would like us to ask the banks in light of this.
Mr. Anderson: I would ask them what their numbers are for job losses. I would also ask them to outline the strategy of property and casualty insurance that makes it so important for the competitive industry in Canada that this small segment be opened up when we have a banking sector that ranks low in terms of international competitiveness and foreign exposure. Furthermore, why has this become such a persistent issue when these other issues, presumably, are far more important to Canadians -- that is to say, that we have more competition in banking, extension of services in banking, and more options than we do now?
If we had 230 bankers competing in Canada, as well as 230 property and casualty insurers, then perhaps some of these other things would be considered. The priority must go to increased competition in banking before we do anything else.
Mr. Cooke: Part of their argument, as was articulated by someone here this afternoon, is that these changes would create more competition and more innovation on product design, and so on. I should like to know, then, what the barrier has been for the last seven years. What exists today that precludes that innovative, creative behaviour that they otherwise seem to think will be stimulated through these particular amendments?
Senator Tkachuk: Are these not the same arguments that the banks used to get into the securities business?
Mr. Anderson: Yes.
Mr. Cooke: To take it over perhaps, yes.
Senator Tkachuk: Those are the arguments that they used, namely, that it would give us more competition and that we should get involved because it would be a more competitive marketplace. However, exactly the opposite has happened.
Mr. Cooke: It was the exact opposite in the trust side and on the securities side. It is our position it will be the exact opposite here.
Mr. Anderson: It is much more informed by history than by vision, when you look at what is likely to happen.
Senator Meighen: Do we have an example in the practical world in the province of Quebec? Can you give us a report from that front? The Caisse de dépôt is the largest deposit-taker in the province, with probably more branches than all the chartered banks put together. They were allowed to sell insurance directly about two or three years ago.
Mr. Anderson: It was somewhat longer than that.
Mr. Cooke: It was in 1987, I think.
Senator Meighen: Do you have any statistics about what the share of the market was before or after, and whether it happened quickly or whether there has been any swing back?
Mr. Anderson: We did a study on that. The man who did that study is right here. He has all the statistics.
Mr. Mark Yakabuski, Vice-President, Government Relations, Insurance Bureau of Canada: Generally, they got a large market share and jobs were lost. There was no price advantage in the way they priced their product. Jobs were lost in the brokerage community and there was a 6 per cent decline in brokers in Quebec at the same time as there was a 23 per cent increase in the rest of the country. There was no price advantage whatsoever. The jobs that Desjardins created were centralized at their head office. Those are the broad trends. In Quebec, they concentrated on the auto and home insurance market. Since 1987, they have sold insurance in their branches in Quebec. Moreover, it is important to recognize that the powers that Mr. MacKay and his confrères in the task force have proposed for the Canadian chartered banks and others are much greater than Desjardins has enjoyed in the Province of Quebec.
Desjardins Quebec does not sell insurance directly in its branches. A representative of the Desjardins insurance subsidiary has a desk in the credit union and can sell insurance from that desk. By regulation and by law in Quebec, that person does not have access to the customer files of the credit union members. That circumstance has existed since 1987. Despite those limited conditions, Desjardins' share of the auto insurance market today is now at approximately 18 per cent, and approximately 15 to 16 per cent in home insurance.
The Chairman: I am trying to understand your point. Do you believe that it is wrong that another player came in and took 18 per cent of the business?
Mr. Yakabuski: If you multiply that by five, you have five major banks who want access to sell insurance through their branches; therefore, you can do a bit of arithmetic.
Senator Meighen: Are you suggesting it would be 18 times 5?
Mr. Yakabuski: What I am suggesting is that you would have large competitors.
Senator Meighen: Why would they not all divide up 18 per cent and go to the other side of the argument?
Mr. Yakabuski: If all the banks used this they would have more branches than the Desjardins has credit unions in Quebec.
Senator Meighen: We are talking percentages.
Mr. Yakabuski: Desjardins controls approximately 50 per cent of the deposit-taking market in Quebec. In Canada as a whole, the major banks control a much greater proportion of deposit-taking than 50 per cent. I am suggesting that you must adjust those figures in terms of possible market share. I am suggesting that conditions in Quebec have been much less liberal than what Mr. MacKay is proposing for the chartered banks.
Senator Meighen: I hear what you say. I am not sure, incidentally, that the banks' share of deposit taking is that much larger. I thought it was in the 60 to 70 per cent range, but I stand to be corrected.
When you say insurance, are you talking about insurance from A to Z, or are we talking about P and C?
Mr. Yakabuski: Exclusively property and casualty.
Senator Meighen: Which includes auto. Is that correct?
Mr. Yakabuski: Auto insurance, home insurance, business insurance, that is the property and casualty portfolio.
Senator Meighen: When you say the Caisse Desjardins took 18 per cent, that is of the P and C market?
Mr. Yakabuski: That is the auto insurance market specifically.
Senator Meighen: What about the other areas of insurance? Do you have any figures on that?
Mr. Yakabuski: Desjardins has decided not to get into the commercial insurance field. They are active in the home field and they now represent approximately 16 per cent of the home insurance market in Quebec.
Senator Meighen: Let me push that if I may. Is that because they are nice people, or is that because they do not believe they can compete successfully in that area?
Mr. Cooke: Who knows?
Senator Meighen: Why would they not do it if they thought they could compete? I must draw the conclusion that they do not think they can compete there because it is a more complex market.
Mr. Cooke: I believe I am correct in saying that in the Quebec property and casualty market generally the most attractive, from a profit perspective, has been the auto market, the second most the home market, the least attractive over a period of years has been the commercial side. I suspect they are likely smart enough to use their dominance in those lines that are more attractive from a profit perspective, but I hate to impute that motive to them since I do not actually know.
Senator Meighen: They are entitled to go into that market if they so wish, are they, under the regulations?
Mr. Cooke: Absolutely.
Senator Callbeck: We have had a great deal of discussion about tied selling and I have a short question in that area.
In your report, you mention the statistics that the task force found in their polling, indicating that 16 per cent of respondents were subjected to tied selling. The spokesman for the Royal Bank, Graham Harris, has indicated that the bank's ombudsman logged one complaint about tied selling in 1996, zero in 1997 and one in 1998. If as many Canadians are subjected to tied selling as the poll suggests, why do more Canadians not complain?
Mr. Cooke: Our point is that if you have 16 per cent, and nobody is using the ombudsman, having the ombudsman is not a very good remedy for the circumstance you are trying to avoid. No one will object to having the ombudsman, but they do not expect it to work.
I have no more monopoly on the right answer than you have, but I believe the reason is that people are disinterested; they are busy; they are afraid. They are concerned that the loan that finally got approved might get pulled. There are all kinds of reasons, certainly with the people to whom I have spoken. In my own case, it is likely neglect. I simply get frustrated when they try to force me to do it and go away and deal with it myself. I do not feel the need and would never contemplate talking to an ombudsman, but it does not mean it has not happened. However, do not rely on the ombudsman to solve the problem, because it will not work.
Senator Callbeck: I wondered why the numbers were not larger. Is this not an issue out there with Canadians?
Mr. Anderson: I believe it is. When we went to the House of Commons on this, there was a great deal of testimony about this happening. Most people get the loan, so that worked all right. They say, "I had to give them my RRSP. That is a commodity; who cares who manages it. I am happy; I got my business loan extended." In other words, they do not wish to rock the boat.
Mr. Cooke: The real danger in here is that the complexity of these products is such that average Canadians, not because they are stupid but because they are busy or uninformed, do not understand the implications that many of these decisions have -- everywhere from hidden service fees to all kinds of other factors. Unfortunately, that is a situation we have allowed to develop.
Senator Angus: I have three small points. First, I understand you did make recommendations to Mr. MacKay and his team?
Mr. Anderson: Yes.
Senator Angus: Based on what I have heard you say tonight, your representations fell on deaf ears?
Mr. Cooke: In my own case, I attempted to set out, at the beginning of my remarks, the three major points that I put to Mr. MacKay. He accepted one and ignores it. He accepted another and I do not agree with his solution for it. He ignored the third.
That is the best answer I can give you.
Senator Angus: You must give to get in this world, and there are various carrots out there on all sides of this industry sector. I was wondering about the payments system. Are you interested in getting into the Canadian Payments Association?
Mr. Cooke: The payments system has no particular attraction to the property and casualty industry per se. That is because of our distinctiveness. It would be very appealing, and I believe good public policy, to extend access to the Canadian payments system to people other than the banks -- for instance, to the large life companies. They could have an advantage from that. It does not do anything for us.
Quite frankly, the property and casualty part of this report really should not be in there. It is as if someone had to recycle the theory of 10 years ago and they stuck it in the report with a bit of an overlay so the whole exercise could be complete, but we do not fit.
Senator Angus: I was wondering that and certainly I have been sitting here wondering how to put that to you. Why do you think it is in there?
Mr. Anderson: In the interests of completeness of vision. That would be the safest answer.
If you look through this report carefully and read the statements that Mr. MacKay makes about our industry, he says the industry is distinct from other industries that are converging in Europe; he says that there is no strong evidence of price or service enhancements if banks were allowed into this business and he also acknowledges dislocation. Where is the evidence to support the recommendations he makes?
Why does an industry with 3 per cent of the capital assets of the market in this country come under such intense scrutiny as an area that needs this kind of treatment to enhance competition, when at the same time we are considering going to three banks in the country?
Senator Angus: Again, I hear you and, I am just wondering if there are not some other reasons. I believe your industry is regulated by OSFI.
Mr. Cooke: We are regulated by OSFI and any number of other regulators in the provinces. We are likely more heavily regulated than any of the other sectors.
Senator Angus: We are talking about a blueprint for the financial services sector and the regulated financial institutions going forward. We are not here to the talk about the bank mergers. We are here to try to understand the framework. The word "network" is bandied around and you can have the meaning you want; however, I consider the property and casualty business to be a key part of our financial services sector.
As to the competition, it is very competitive and the rates are very low. It is a terrible thing right now. You put out documentation on this. It is tough for brokers as well. We will hear from them later.
Mr. Cooke: The MacKay report addresses the themes of jobs, competition, consumer protection and that sort of surveillance or oversight.
To a certain extent, we are there for those kinds of reasons. What I find quite startling is how the particular analyses take place given the intended conclusion.
Senator Angus: One thing the task force dealt with would seem to belie some of the things you are suggesting. I am talking about the issue of earthquake insurance. If you wish to obtain earthquake insurance in this country, there is a capacity problem. It is a difficult market. Therefore, when you are looking at the low rates and so on, it does not include earthquake insurance. Perhaps financial institutions who say they would like to get into the property and casualty business might say, "Hey, what about earthquake insurance? We will sell earthquake insurance, and we will provide it to the consumer at a good rate." What about that?
Mr. Cooke: We could be here for another two hours on earthquake insurance.
The Chairman: We will not be.
Mr. Cooke: The banks being able to sell through a bank branch has nothing to do with earthquake insurance. They can do that today, if they so desire.
As far as earthquake insurance is concerned, the major problem that exists is a legislative problem that does not allow for the earthquake and the fire following, which are two distinct pieces of what would constitute the loss following an earthquake, to be properly separated, priced and dealt with. As a consequence of Mr. MacKay's report, you will not find anybody more eager to sell earthquake insurance.
Mr. Anderson: We are in much better shape today on this issue thanks to government legislation than we were five years ago.
Senator Kroft: How many of the companies in the property and casualty industry provide bonding protection?
Mr. Cooke: I can tell you that we do. There is only a handful at this point in time.
Senator Kroft: Is there any inhibition to doing it as a policy decision?
Mr. Cooke: None whatsoever.
Senator Kroft: Based on my own personal experience in the bonding business, the information that you gather, although it tends to be corporate rather than personal, is pretty searching, far-reaching and fundamental, not unlike credit-gathering information from people giving loans, because you are supplying what amounts to a credit facility to allow someone to carry on business.
Are your concerns about the passage of information between the arms of a company based on any experience that you have with the difficulty of containing that information?
Mr. Cooke: First, with respect to your point that the bonding side is more corporate than personal, it is materially more corporate than personal, and the simple answer is no, we have had no difficulty containing it, and my concerns are not based on that. It is not used. Nobody will try to leap off the bonding product for other product sales. That is not the way it is structured.
Flipping it around on the other side, my concern is the abuse of dominance argument.
Senator Kroft: I am concerned about the fundamentals. I share your concern that someone sitting in a room, or even worse within his own mind, can exclude one type of information from another in arriving at a decision. I am curious whether you find yourself in the same position, where, for three years, say, you have somebody's financial statements on your desk and are deciding whether he is to be a continuing customer.
Mr. Cooke: That is an interesting question. As a corporate entity, we provide the bonding and services to existing customers as a way of enhancing the relationship, usually at their request. It is not a line that anybody is aggressively pursuing. It is done more to satisfy a customer need than to stimulate one.
I can well understand that the circumstance you talk about is possible. Yet on the commercial side, since most of the people are existing customers anyway, much of that financial data you would have by virtue of doing the commercial insurance already. Therefore, it becomes quite complementary. There is no prohibition about getting that information corporately, whereas, on an individual basis, there certainly is; it is illegal.
Senator Stewart: The witnesses have raised some uneasiness in my mind concerning the MacKay task force. I gather that you found that your presentation seemed to receive fairly high acceptance with the force; yet you say that, when the conclusions came forth, your initial perception was apparently wrong.
Did the banks make a strong pitch to the task force with regard to property and casualty insurance?
Mr. Anderson: Yes.
Mr. Cooke: I cannot answer specifically, because I did not follow it directly, but I must presume that they did.
Senator Stewart: Why do you think that the banks were more persuasive in their arguments than you were?
Mr. Cooke: I will go out on a limb. Senator Kirby knows that I have a habit occasionally of doing that, and he may have to push me back again, but I must tell you that, as I look at this objectively, it appears to me that someone, or some collection of people, had a preconceived notion of what the world would otherwise look like. They took what they had to take and forced it to fit into the model they had. The recommendations that fell out or did not fall out and the issues that were discussed or not discussed were consistent with the outcome that someone had predetermined before they started. I hate to put it that way.
I do not, for what it is worth, charge Mr. MacKay with that personally, because I had that view of the task force before he was there.
Senator Stewart: Your suggestion seems to be that this preconception of the future is not very tightly tied to the experience of the immediate past.
Mr. Cooke: Nor the present.
Mr. Anderson: I might add one other thing about that recommendation. We were not entirely hitting foul balls. The task force report did say that this should not go ahead until 2002 with respect to the major banks, but that it should go ahead with the smaller players, adding the bigger banks later. It was a bit like the proposal to change to driving on the other side of the road progressively, starting with small cars and then bringing the trucks in.
Senator Stewart: I know exactly the kind of driving to which you refer.
The Chairman: Our final set of witnesses today is from the Insurance Brokers Association of Canada, led by Mike Toole.
Mr. Toole, I assume you have an opening statement. I know you have been in the room. I am not a big fan of hearing the same argument twice within the space of an hour and a half. Not having read your opening statement, I assume that your opening arguments are similar to those just made by the Insurance Bureau of Canada. I would ask you to be as brief as possible and hit the highlights so we can move directly to the question period.
Mr. Mike Toole, President, Insurance Brokers Association of Canada: I am a volunteer on the board of directors of the Insurance Brokers Association of Canada, and I own a brokerage firm in Fredericton, New Brunswick. With me today is Robert Ballard, also a volunteer on the board, vice-president of the association, and a brokerage owner in Montreal. Jim Ball is president-elect of our association and a brokerage owner in Vancouver, British Columbia.
We will restrict our comments today to some of the broad themes raised in the report and the recommendations that directly affect our industry. In this regard, the MacKay task force has failed to fulfil its mandate. We question the premise on which the task force bases its recommendations, and we also question why there are so many critical oversights, especially as they relate to property and casualty insurance.
Has the MacKay task force fulfilled its mandate as outlined in the terms of reference? Simply put, no. The task force was asked to assess the quality of competition within the financial services sector, including various segments of that sector, and regrettably for our sector that has not happened.
Nowhere does the task force recognize the intense competition characterizing the P and C insurance sector in Canada; nowhere does the report mention that Canadians have benefited from fair P and C insurance prices, and nowhere does the report reflect our sector's ability to respond swiftly and effectively to the needs of Canadians, especially in times of crisis such as the 1998 ice storm.
We presented a number of key policy issues that need to be addressed to insure that Canadians will continue to enjoy the benefits of a healthy and competitive P and C insurance sector. For whatever reason, the task force chose to ignore these important policy issues.
In outlining the forces of change, such as technology, globalization, and market trends, the report does not deal with all the domestic and international competitive realities of today. It does, however, focus on the future to such an extent that it ignores what is on our doorstep now.
The forces of change are certainly important, but they should not lead us to act prematurely or incorrectly. That is the real danger. The report implies that the winds of change are so strong that our federal government may not have the freedom to pursue an independent policy for its financial services sector. Nonsense. Every nation on earth is perfectly capable of setting its own policy agenda. We recognize the need to give our financial institutions the flexibility to compete on the world market, but Canada and the stability and security of our domestic market must come first.
The report rightly notes that the international community has responded in a number of ways to globalization and technology. The first of these is convergence of function, by which the boundaries separating the traditional four pillars are fast disappearing. The second is disaggregation of function, by which financial institutions divest certain parts of their businesses to focus on specialty areas and niche markets. The third is mergers and acquisitions.
Why is this point so important, and why are we so concerned about it? The task force has allowed the concept of convergence to dictate how the whole sector should be reformed. It has totally ignored one of the most critical trends affecting the financial services sector around the world. Nowhere in the report is the disaggregation of function option fully examined or considered. Why? Had it taken this market trend into account, we are confident that many of the task force recommendations would have been vastly different.
We had suggested that the restructuring should be an evolutionary process, not a cataclysmic event. An excellent opportunity to pace the reform process and provide Canadians with a manageable plan of action has therefore been missed.
That brings us to our major objection to the report. We are bitterly disappointed with the report's assessment of the Canadian property and casualty sector.
First, the report fails to recognize the distinct nature of P and C insurance in its recommendations. In so failing, the task force may be paving the way for unfair policies to emerge. If this is allowed, banks will have an unfair competitive advantage -- defeating one of the main objectives of the 1992 reforms.
On this point, the federal Superintendent of Financial Institutions recently commented that he had been struck by the lack of real understanding of the P and C sector and the tendency to lump it together with other financial institutions. This problem, he stated, is the root of some of the policy decisions made in the past and is likely to be a factor in looking forward as well.
Second, the report ignores the contribution of and services provided by the P and C sector. There is no mention whatsoever that Canadians enjoy the benefits of having one of the most competitive and cost effective P and C sectors in the world. This is an example of the point we raised earlier regarding the complete failure of the task force to fully assess the competitiveness of Canada's financial services sector.
Third, the report ignores the role of independent brokers. Why? We are responsible for 75 per cent of the P and C insurance written in Canada. Is this not an important factor to consider? Do these jobs not count? Furthermore, there are important policy and regulatory issues that already put independent brokers at a serious competitive disadvantage, and yet no reference is made to these serious issues. This again raises the question of why.
Fourth, the report also overlooks the important social and economic contribution made by, and the regional benefits accruing from, the P and C sector. Independent brokers and their staff account for approximately 60,000 of the 100,000 men and women employed in the P and C sector. The vast majority of these jobs are at the community level in virtually every rural and urban centre across Canada.
We are appalled by this serious oversight, given that the task force had been specifically asked to consider jobs, job creation, and small business. If the banks are once again given special privileges, thousands of independent insurance brokers and their staff will lose their jobs and businesses. Yet nowhere in its report did the task force assess the impact of its bank insurance recommendation. It only notes that some existing jobs may be lost. This is a major understatement. It is totally unacceptable.
Fifth, the report overlooks the fact that banks are already in the business of insurance and that the current fair competition rules of the Bank Act are working well. Our government has balanced the interests of small business with those of big business. There is absolutely no evidence to suggest that banks are at a disadvantage.
Sixth, the report's own analysis is not conclusive, nor is it convincing. There is also insufficient research and data to justify its findings as they relate to our sector.
Given these shortcomings, it is remarkable that the task force concludes that banks should be given an unfair competitive advantage in distributing P and C insurance. The task force advocates that position on the grounds that it is common for banks to sell insurance around the world, especially in Europe. The reality is that European banks have had a great difficulty penetrating the P and C market. One reason is that the banks have recognized that P and C insurance is distinct from the traditional investment products and services they offer.
The task force also suggests that lower premiums may occur because new entrants are often able to enter the insurance market using lower cost distribution channels. This position, though, is built on a false premise. There is no evidence anywhere that the distribution costs for an independent broker network are higher than those of banks selling insurance through their branches. We believe the opposite is true.
A Wall Street Journal article noted recently that European banks have been pursuing this goal of cross-selling to retail customers for the last 30 years or so. Thus far, no one has presented a model of it working very effectively. The jury remains out on the concept.
The article states that, too often, diverse product mixes have been used to cover up underperforming units, with gains from one division hiding losses from another. As a result, European banks are being pressured by investors to focus on their more clearly defined strengths and lines of business. This is reflected in the disaggregation of function we talked about earlier. Perhaps we should learn from the European experience.
The issue of banks and insurance has been hotly debated for some time. Nothing has changed since 1992 when Parliament unanimously supported the government's decision regarding banks and insurance. Nothing has changed since Parliament endorsed its decision again less than two years ago as part of the 1997 review. Our member brokers from across Canada tell us that their MPs remain strongly supportive of the fair competition provisions of the Bank Act.
There is no evidence to suggest that consumers are promoting this debate. They certainly are not clamouring for bigger, more powerful banks. The task force's own research shows that a majority of Canadians believe banks have too much power and influence already. It also concludes that a majority of Canadians are satisfied with the level of service from their insurance broker and that there is adequate competition in the insurance marketplace. Our own surveys reinforce these findings.
As for small business, the Canadian Federation of Independent Business has testified on many occasions before this committee, stating its strong opposition to expanded insurance powers for the banks. Who is pushing for unnecessary changes, then, and why does the task force endorse the policy, regulatory and statutory framework that favours banks over other groups?
The task force proposes a framework for the P and C sector that will reduce competition, not increase it; one that will increase costs, not lower them; and one that will provide less consumer choice, not more.
The issue is not about competition in the P and C insurance sector. The real issue is about a lack of competition in Canada's banking sector. Let us not get sidetracked by trying to fix something that is not broken.
Setting aside the issues we raised today, it is critical that the government not overlook the single most important factor during this process, that is, the human factor. We are dealing with men and women and families here, not profit and loss statements. When corporate gains become more important than people, we need to pause and reflect on whether the pendulum has swung too far.
Clearly, the situation in Canada is unique and requires special consideration. We hope that you agree.
We would be pleased to answer your questions, Mr. Chairman.
The Chairman: With regard to your focus on the potential jobs that might be lost, is it your view that, as public policy, this committee and the government should adopt no change in the financial services sector which might cost some jobs? That is certainly the impression one gets both from your presentation and that of the Insurance Bureau of Canada. Perhaps what you are really saying is that no jobs should be lost in your sector, but you do not care much about the others.
How does one change the framework of industry in which technology and other things are having such a dramatic impact on the use of both people and other things?
I am not arguing in favour of unemployment. I am just asking whether I am correct in reading that one of your underlying themes is that this committee should support nothing that is likely to cause some dislocation in employment.
Mr. Toole: I think everyone will agree that we have a healthy banking system, auto-leasing business, and insurance business. When you see restructuring and job losses, it is usually to save an unhealthy line of business or sector. What we have here is a healthy sector. I do not think jobs should be displaced when you already have a healthy business in place.
The Chairman: I think you have answered my question. Your position is that we should make changes only in the event that it is not working well today, that if everything is fine, we should make no change. Is that your position?
Mr. Toole: Yes.
Mr. Jim Ball, President-elect, Insurance Brokers Association of Canada: If I could add to what Mr. Toole has said, senator, there has been change. An enormous change was made in 1992, which allowed banks to own and manage insurance companies.
I think we are talking about jobs that are located in the community being lost.
The Chairman: Every job is located in some community.
Mr. Ball: Insurance brokers are mainstream. They are in every single town and community in Canada. They live, work and make their decisions in the community.
The Chairman: Is that not true of any branch-type business?
Mr. Ball: I do not think so.
Why are the banks demanding to get into our small segment of business? Is it because they see that they will offer lower prices and better service to communities? That has not happened to date in the six or seven years they have been in the business.
I am the owner of a small agency. I employ 18 people. I do not make my decisions based on the value of my shares. I do not spend my day worrying about the value of my shares and what they are doing on the stock market. I worry about making a profit, of course; but I also worry about my employees. I worry about how much money they make and I do not worry about increasing productivity simply so that my stock price will be reflected in that productivity gain.
I also concern myself about my customers. I do not make productivity gains or do other things that will reduce the service to my customers in order to drive my share price up.
The kinds of jobs we are talking about losing are those jobs that are in the community in small businesses run by people like myself.
If these changes would make all that much difference in terms of competition, I would say go ahead. Why change something that works really well and makes up the social fabric in a community? Insurance brokers are some of the leading citizens in their communities. They do good work. They do all the things that the report says that we should be looking to do.
Senator Kolber: Are all brokers that altruistic? You make it sound like bank managers are bastards and brokers are wonderful people.
Mr. Ball: I am not implying that. I am just saying that the bank manager reports to someone else who reports to someone else who ultimately reports to the CEO. In major corporations today, unfortunately, they must think about their share values. They are more responsive to their shareholders than they are to their customers. They have to be in order to keep their share prices high and to keep the analysts happy.
Senator Kolber: I would have thought you could make better arguments.
Senator Tkachuk: I have much sympathy for your points of view. You mentioned the fact that the MacKay task force chose to ignore the property and casualty business, and you have told us what points they missed. Why do you think that they did not address the issue of property and casualty insurance in a much more detailed fashion?
Mr. Toole: I cannot tell you why. They did a complete analysis of the life business and the banking business, but they did not do an analysis of our business. We are stating that, if they had done a complete analysis of how competitive our business is, the recommendations would have been different.
Senator Tkachuk: I find it a little incongruous that the MacKay task force report talks about the need for increased competition in property and casualty if the banks get in, even though there are over 200 companies in the business right now. Then they use the opposite argument that the leasing market is dominated by Ford Motor Credit and all those other big U.S. companies; therefore, they must be more competitive.
The Insurance Bureau witnesses talked about 20,000 people in your industry losing their jobs if these recommendations come into force. Does that include brokers, do you know? Or is that just the people in the property and casualty insurance business? Can you can break that down for me?
Mr. Toole: Our numbers would be different. I think 20,000 jobs represents a conservative estimate. You would probably see more like 20,000 brokers lose their jobs and probably another 10,000 to 12,000 insurance company employees, for a loss of over 30,000 jobs.
We base that on the market share which the banks say they can probably capture if they are allowed to retail in their branches. They say they could capture 35 per cent of the market. I think that is also a conservative estimate. However, based on a 35 per cent market share, we expect a job loss of 20,000 brokers.
Senator Tkachuk: Will their own insurance companies not have to grow? In other words, will the insurance companies owned by the banks grow to make up for the market share which they are taking away from the other insurance companies?
Mr. Toole: To give you an idea of what has evolved since 1992, when the banks were given the right to sell insurance but not out of their branches, basically four banks are now retailing insurance. The Bank of Montreal is one of the major banks that is not.
CIBC Insurance now writes $259 million in net premiums in Canada. That puts them in 21st position out of 230 companies. That is under the current rules. Their entire insurance operations are growing at 30 per cent per year. If my business was growing at that rate, I would be ecstatic. The banks do not seem to be ecstatic. It seems they want more. That begs the question: When does need become greed?
The 1992 provisions found a balance between the interests of small business and big business. It allowed the banks to sell insurance but allowed small business to compete with them. That is where we found a level playing field and that is why we think the 1992 revisions should remain in force.
Senator Tkachuk: On page 4, in your sixth point, you say:
The task force advocates that position on the grounds that banks selling insurance is common around the world, especially in Europe. The reality is that European banks have had great difficulty penetrating the P and C market.
If that is the case, then why is there such a large concern amongst the brokerage community and the property and casualty community about the fact that banks will be in the insurance business?
Mr. Ball: Mr. Cooke and Mr. Anderson partially answered that. It is because of the concentration of power that the banks have. There is another reason that did not get mentioned. I will give you an example. I bought up the small business of a retiring broker. What I paid for was not hard assets. I purchased essentially the customer list. The customer list included in the files the policies that were written by that broker and the companies with which they were written. That is what I paid for.
When you take a mortgage out on your home, you are required to provide a copy of your policy to the financial institution that provides the mortgage. They have the very thing for free that I had to pay for. They can turn around and use that information against me. I give it to them in confidence because, as a broker, I must help you provide to the bank a copy of the policy in order to get the mortgage. They have all that information. I have to buy that information if I want to grow my business. They have it for nothing and they can use it. That is where the unfairness comes in. In addition to the tied and coercive tied selling, they have the information that is essential to my business.
Mr. Dan Tessier, Public Affairs, Insurance Brokers Association of Canada: There is another important feature to consider. In foreign jurisdictions, especially in Europe, the whole thing has evolved differently. It is different in Germany. It is different in France. It is different in Italy, Spain, Portugal and so on. The MacKay task force did not assess what is actually happening in those various jurisdictions.
Look at the German experience. P and C insurance there was highly regulated so that you could buy your insurance from just about anyone. That is my understanding. There was no price competition. You must take those things into account. That is our problem with the MacKay task force. It did not do that. It accepted the generic term "bank assurance" and said that because they have that in Europe, we should do it here. That is not the right way to go about it.
Senator Kenny: Thank you for coming. I appreciate hearing your views. After hearing your brief, I have a bit of an impression that you folks are here defending your turf. I know that brokers are a powerful lobby. I know that you have influence on Main Street, as you have said. In the past I have seen brokers having effective impact on their elected members of Parliament. I respect that and I understand the influence that you do exert on the system.
I am not so certain, though, that I have heard in your brief the consumer perspective. I hear you protecting your turf and that is fair ball. If I were in your shoes, I would be protecting my turf, too. However, I would be interested to hear you describe how you see the consumers' interests being protected.
Mr. Ball: Mr. Anderson and Mr. Cooke talked about the fact that we do have 230 insurance companies competing for the business. They talked about the fact that no one of them has more than a 10 per cent market share. They talked about the fact that 75 per cent of that business is written through independent brokers who shop the business on your behalf amongst all those companies and make them compete for it.
They did not talk in much detail about the fact that, since 1992, there has been a big new change caused by technology. That is the growth of call-centre technology. That has had more of an influence on the competitive nature of our business than anything else to date. It has provided for us in particular a real, strong competitive force. They are going around spending millions of dollars on advertising, increasing the awareness of insurance in a way that it has never been increased before; they are increasing everyone's opportunity to shop because advertising encourages you to do that. In other words, it is really changing the nature of our business more than anything else in my view in the 35 years that I have been in the business.
Senator Kenny: These are call centres that the banks have started?
Mr. Ball: The banks and also the insurance companies. We have insurance companies that sell through our channel but who also have a call centre they sell through. That is sharpening everyone up. As brokers, it is forcing us to turn to technology. I sell insurance through Mr. Cooke's company. Now I can upload my information to Mr. Cooke and he can download his information to me. We are reducing the expenses in our business; we have to. In order to compete more effectively with the new methods of distribution that are brought on by this increase in technology and the use of modern communication and call centre technology, we must reduce our business expenses.
When I look down the road, if nothing changes other than these rules that have been in place since 1992, I see more call centres operating. Insurance lends itself to call centre technology. More people will be buying insurance over the telephone. A certain percentage of them will still like the comfort of the choice we offer.
The other thing we offer that no one else can offer is advocacy when you have a claim. I doubt whether you have ever read your policy. You probably do not know whether you have coverage or not. My job is not only to place that insurance properly for you, but also to ensure that when you have a problem, and you do not like the way Mr. Cooke's company is handling it, you have somewhere to go. You do not need an ombudsman or anything but your broker. My job is to advocate on your behalf, and I do that each and every day.
Some people feel sophisticated enough that they do not need me, so they will buy through a call centre. We had an insurance agent in B.C. that just set up his own insurance company. There will be insurance companies doing brokering work and brokers setting up insurance companies. There will be banks using call centres. The competition that we have now is fierce and will continue to be fierce in the future. We do not see how giving banks the unfair advantage that we have all talked about will make that competition any better. I think it will stifle it a bit.
Senator Kenny: Once again, sir, you have explained to me why you are facing fierce competition. You are here to protect your turf, and I accept that. My question was to explain it from the consumer's perspective, why there is an advantage from the consumer's point of view to keep things as they are.
Mr. Ball: First, because there is a lot of competition. Second, if banks are allowed to intercept a customer at a point when that bank has a power advantage <#0107> for example, the use of credit -- then the competition will be reduced. The customer, for one reason or another, whether he is unsophisticated or it is a first purchase -- for example, the first time he has bought a home or vehicle -- will listen to the song that the bank sings. It does not mean that the customer will have a better product, because the bank only has one product to sell. Unlike what we do, the banks will not explain what different companies offer. The banks will not have a better price. They have not shown themselves, in the last six years during which they have competed with us, to have better prices even though they are using new technology. Since they are not providing better prices or a better product and there is a risk, which we have recognized -- and the report asks for all sorts of regulatory things to dampen this risk of coercive tied selling -- a question arises in my mind: Given that we have this great industry that is working well and providing jobs at the local community level, why do we need this unfair competition? The banks are already competing, as Mr. Toole said, very effectively against us under the provisions that were set up in 1992.
Senator Kenny: You talk about the banks competing against you now. I do not recall from Mr. Toole's testimony how many millions of dollars of premiums they were collecting per year.
Mr. Toole: CIBC?
Senator Kenny: I thought you gave it for the whole industry.
Mr. Toole: No. I just gave as an example the CIBC, and it is $259 million in net premiums.
Senator Kenny: If one bank is collecting $259 million in net premiums, does that not say that many consumers see some attractiveness in their product?
Mr. Toole: Sure. We are saying that there is competition there. We are also saying that they should have to acquire that business in much the same way we do, that they should not be able to use the information that we provide to them to compete against us. The banks have been put in a privileged position in this country to promote small business, not to compete against it. To them, we are a barrier to total domination of the Canadian consumer. We write 75 per cent of the business. If they get into this line of business, they will take over this business, just as they did the stock brokerage business and the trust companies. It is just a matter of time.
Senator Kenny: If they take it over, will the consumer benefit or suffer?
Mr. Toole: There will be benefits in the short term. The banks have traditionally gone in low and, once they have captured market share, they have increased their prices. We submitted information on that issue to the MacKay task force. In Ontario, when the banks went into the marketplace, they captured market share, and within six months they increased rates 10 per cent. Robert Ballard can give you much the same information on the Desjardins Group in Quebec, on how they view competition once they get into the marketplace.
Mr. Tessier: Just to bring this closer to home, the other day I shared a personal anecdote with the House of Commons Finance Committee when we appeared before them. This will touch on some of the questions raised a while ago. This story is about someone very close to me, a 78-year-old retired gentleman.
It turns out he is illiterate, has a grade one education but worked hard all his life and has never had any debts, always paid cash, never had a need for any loans of any type. He went to his local credit union in Quebec and at one session, the lady said, "If you take on the auto insurance -- and we will walk you over to the door that is just right around the corner here -- I get a little bonus." He walked out of there with insurance, a Visa card, and an ATM card. He cannot use it; he cannot read. That is not only illegal, but it is immoral.
When I heard about this, I called the institution on his behalf and said, "This is ludicrous. You cannot do this to people." We have many, many similar examples.
If banks are given these other special privileges, they will do exactly the same thing because the incentives are built in. If you pick up a copy of Canadian Banker, the CBA monthly magazine, there is an article about that particular issue, the built-in incentives to encourage the people who are at the kiosk, the bank teller and so on, to look at those cross-selling opportunities. How can you regulate that perception? You just cannot.
Senator Kenny: What happens if the customer wants those other products?
Mr. Ball: At the present time, he is free to buy them from 230 providers.
Senator Kenny: What happens if he wants to buy them from one?
Mr. Ball: He can do that.
Senator Kenny: You have no problem with that?
Mr. Ball: No. We just want the competition to be fair. You gentlemen have been saying that the market should be directing and driving regulation, not the regulator. The market is working with these regulations that were put in place in 1992. The competitive nature of our industry has blossomed in the last six years. We need time to see that worked through.
As Mr. Cooke said, let the banks have a little competition with the changes to their rules and see how they respond to that before they are given the right to tackle our industry. Our industry is working fine. We have a lot of competitors, both domestic and foreign. We have spread of risk. We have jobs in every small community. Why would you want to risk upsetting that and putting all sorts of regulations into effect just so that the banks can retail insurance out of their branches? It just does not make sense.
Senator Di Nino: I would like to expand Senator Kenny's line of thinking. Our responsibility is to try to make decisions that will be of benefit to Canadians. One of the concerns I have, having listened to the previous witnesses and yourselves, is -- if I can call it this -- the change in lifestyle, particularly in small communities across this country. Your numbers on job losses are greater than those of the previous witness, but having said that both are very large in terms of the number of people we are dealing with.
The claim is that the banks, because of who they are and what they do and particularly because of their ability to disburse credit, will use the information to attract this component of the business as well as everything else that they do. That, you are saying, will result in many brokers closing their offices, job losses in the offices of the brokers, particularly in the smaller communities across this country. Am I correct that that is, in a nutshell, what you are talking about?
Mr. Toole: That is correct.
Senator Di Nino: Describe who this broker is or who these brokers are in your community. What would the community lose if the broker closed down, besides the competitive nature of it?
Mr. Ball: The community would lose someone who lives and works in that community, someone from whom to purchase insurance products, someone who can give unbiased advice and provide a choice. If the only place to purchase product is the banks, selling their product and selling only at their price, then there is no choice. If a customer has a claim, especially a complicated product that has never been read by the customer, he or she is at the mercy of the financial institution. I would challenge the members of the Senate to tell me how many of them have actually read, from page to page, all their insurance coverage. We know customers do not do that. That is why we play such an important role.
I have been in the business 35 years. I learn something new about general insurance every day. It is a distinct business. I am helping customers interpret their policies every day. I am helping them get claims paid that Mr. Cooke may not want to pay. I play that advocacy role, to which it is important for every consumer to have access in today's market. This is a complicated product that no one ever takes the time to understand.
Senator Di Nino: Those are two important points. I wish to highlight them to understand them properly. If banks were to sell insurance through the branch network, you are claiming that they would only sell their product and not Mr. Cooke's product?
Mr. Ball: Not the way they have been working to date. They have set up their own subsidiary insurance companies.
Senator Di Nino: Having a choice is an important component of competition. Furthermore, you would be able to represent them in their claims for compensation whenever they need to do that.
My knowledge of insurance brokers -- which it is not extensive but it is large enough -- also leads me to believe that communities would lose some other important components of community involvement, which I believe is a major part of your business aspect of a community. Is that correct?
Mr. Ball: That is true. Particularly in the smaller communities, most brokers are leading citizens. They participate on community boards and do a lot of community work. The task force says that this is what the bank should be doing, namely, providing more accountability to communities. We are in communities providing that accountability right now by doing the kind of things to which you have alluded.
Senator Di Nino: So that involvement in the scouts, volunteering as soccer coaches, and so on, is a component of being a small community broker?
Mr. Ball: Yes.
Senator Di Nino: From what we have heard, it may be inevitable that some changes will take place, either now or later, which will impact on your ability to continue to run a successful business in your communities. I understand that you are limited in the number of products and services that you can sell through your network of offices across the country at this time. Is that correct?
Mr. Ball: Only by choice. If I wanted to do so, I have been offered a mortgage product and an RRSP product to sell. I can also sell mutual funds, but I have chosen to stick to what I do best and what I know takes up more than enough of the time that I have to give it. It is a very complicated business.
Senator Di Nino: There are no restrictions on your ability to sell services?
Mr. Toole: There are restrictions. Basically, insurance is regulated provincially. There are 10 different regulations across Canada. What Mr. Ball may be able to do in Vancouver, I may not be able to do in Fredericton and Robert may or may not be able to do in Montreal.
Senator Di Nino: If you were to speak on behalf of the whole country -- and you are able to do so as president of the association -- what other services do you think you should be asking for or would you want to ask for if we were to take something away? Is there something under legislation that we could give back to compensate for what we take away?
Mr. Toole: We have always said that we are specialists. We believe that what we do, we do well. We want to remain in that area. We want to sell the products that we are best at doing. As Mr. Ball said earlier, insurance is evolving. There are new products all the time and there seems to be fewer hours every week to best service the customer. That is why we talked about the disaggregation, the specialty lines and the niche markets. You need someone to be able to specialize in those lines. We see our focus in that line at the present time.
Senator Kelleher: I have been listening carefully to your presentation and to the previous one. I must admit that I am confused. Most members of the committee will agree with that statement, I am sure. You seem to be saying, "There is a lot of great competition out there. We do not need more." I have a little trouble with that because I have often felt that more competition would help the consumer in the long run. That has been the trend in business. You say, "No. When you have enough competition like we have, you do not need any more."
I do not know how you can say that. How can you say to me that, when banks are not in this line of business now, it will not lower the price and that it will not be a greater benefit to consumers? If they do come in and do not offer better service or a lower price, then you have nothing to worry about, have you?
Mr. Ball: They are already in the insurance business.
Senator Kelleher: No. They can own insurance companies.
Mr. Ball: Yes, and sell insurance.
Senator Kelleher: Yes, but they cannot sell it in branches. Is that correct?
Mr. Ball: Yes.
Senator Kelleher: You are saying that we do not need more competition. We have all the competition that is there now and having more competition will not help the consumer.
Mr. Ball: Not if it is unfair, which is what this would be.
Senator Kelleher: You think it is unfair because it may provide more competition for you, but have there been any studies to show that it will not be better for the consumer? I have not seen any studies done by your industry.
Mr. Toole: I can tell you where the banks are as far as their pricing goes. In Ontario, CIBC insurance is about the middle of the pack. Mr. Ballard will comment on Desjardins in Quebec.
Mr. Robert Ballard, Vice-President, Insurance Brokers Association of Canada: The caisses populaires in Quebec started selling insurance in 1987, as Mr. Cooke said earlier. They now write over $300 million worth. In so doing, we have lost over 1,000 agencies in the Province of Quebec in the past 10 years. If you average about three or four employees per agency, we have lost 4,000 jobs in the province.
The Chairman: One must presume that the Caisses populaires Desjardins hired some number of people -- not the same number that lost their jobs -- to do that selling. I cannot believe that all of a sudden no job replacements took place. In fairness, you must give us a balanced argument so that we get the full case on the table.
Mr. Ballard: Yes, but it is all concentrated in one area, namely, in Lévis, Quebec. Jobs are lost in the community.
The Chairman: I have difficulty with the phrase "community" because people live somewhere. You are saying that they were lost in some locales and relocated in other locales.
Mr. Ballard: Yes.
The Chairman: This reminds me of when I was trying to close fish plants in Newfoundland. I heard the same argument.
Senator Kelleher: I do not seem to be getting anywhere with my question. I am not getting an answer to it.
You are saying that it is not necessary; that we have all the competition we need there now. I do not see how you can possibly say that. You have not provided me with any statistics or studies to prove to me that allowing the banks to do this or that will not result in benefits for the consumer.
Mr. Toole: The banks have told us that they feel they would have a 35 per cent market share if they were able to retail insurance out of the branches. In Europe the figure is only 5 per cent. Consider the fact that 63 per cent of Canadians buy all their products from a bank if they buy one product there. If the merger is allowed to go through, you will basically have almost 70 to 80 per cent of all customers going through two mega-banks. With that bank concentration, they will totally dominate the consumer.
The MacKay task force also goes further than they did in Bill C-188. The task force report says that the banks will be allowed to use all customer information.
The Chairman: For the record, Bill C-188 is the bill that allows the Caisses populaires Desjardins to sell insurance.
Mr. Toole: The MacKay task force report recommends that the banks be allowed to use this information, which is even more than Bill C-188 has done. They are allowed to use the information that they have developed, and they are also allowed to use the information that we have given them. They will be able to use that information to compete against us. We do not think that is fair.
Senator Kelleher: I realize that, but I am concerned about what is best for the consumer. If we do not allow this type of competition, how will we find out what is best for the consumer? If in fact it results in a lower price, more product, and better customer service, then why is it bad? It may be bad for you, I understand that, but it is not bad for the consumer, is it?
Mr. Toole: If you consider what the banks have done with any other industry sector, or any other pillar where they are involved, in the long run they have reduced competition, not increased it.
Senator Kelleher: Actually that is not true in Toronto. When they took over the brokerage businesses everyone said we will have only four or five brokerage businesses left in Toronto. That is not true. All kinds of people in that industry are finding they do not like working for the Wood Gundy types of this world and they are setting up independent brokerage businesses around Toronto. The industry there is very healthy and competitive.
Mr. Toole: In small town Fredericton there are three brokerages left, and there is one trust company left. There is less competition, and there is less choice for the consumer.
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?
Senator Stewart: As I listened to the witnesses when they were making their initial presentation, their argument brought to mind what used to be said in certain other commercial sectors, such as when the supermarkets were moving in on the grocery stores and the local pharmacies. My question is, what in your view is special about the financial services sector so that we must review it in quite a different way from the way the supermarket question was looked at?
I realize that there is a jurisdictional difference under the Constitution. The financial services sector comes, to a large extent, under the Parliament of Canada. What is your understanding of why, in the case of your industry, the financial services sector should be treated differently?
I wish to know why you think that a job with a local broker, in insurance, is different from a job in a locally owned pharmacy.
Mr. Ball: When a new pharmacy moves into town, to compete against an existing pharmacy, he must do so under the same rules as the one that is already there. He must advertise in the newspaper. He must build a bigger, better store. He must offer more products. At the end of the day, he must attract that customer in the same way that all other similar businesses in the town do. This is not the case with banks retailing insurance.
Senator Stewart: I thought that you might have answered that the financial services sector is a national service, which we have chosen to put in private hands with heavy regulation because of its nature, as a service to the Canadian nation. Whereas we can leave the supermarket business, even in pharmaceuticals, to the ordinary commercial market.
Mr. Ball: That could be true, but we do not think we should be allowed to exist or be protected simply because of that. We welcome competition, as the other groups have said, but we are not effective enough in getting our point across as to how unfair it would be if the information I give to you as a banker can be used against me.
Senator Stewart: I am not disputing that point at all. I tend to agree with you on that point. I was wondering generally about the financial services sector and why at this stage we treat it differently.
We hear the argument on the merger proposal that we need to be bigger in order to compete internationally. I am then prompted to ask what that has to do with an ordinary Canadian's interest in having a sound financial system within Canada. Increasingly, that question comes up as we see what is happening in other parts of the world in the financial services sector.
Mr. Tessier: I understand what you are trying to get at and I agree that our financial institutions, namely the banks, have been given special privileges over time because it has been in the best interests of our national public policy to do that. They do render a public service, somewhat. However, that role is now being changed by the very institutions that have benefited from those decades of protectionist measures. That debate has not taken place.
Canadians on the street would tell you that they understand what their banks are supposed to do, and that is to serve their needs, the needs of their communities, their small business and so on. How many would be aware that there is a fundamental change now taking place and that is not being debated? That is the first step towards reform.
Another point that was raised is what the difference is between the financial service and walking into your pharmacy or clothing store. You can walk into any institution or retail outlet and select a product and walk out. No one is there to say that if you do not buy the suit, you will not get the tie. You have that choice. You can walk in, walk out, you can get the ketchup with the hamburger if you want, but you do not have to.
The financial institutions are taking away that choice by forcing, at times indirectly, but at times as forcefully as the personal anecdote I shared with you a while ago, that if you are to receive this credit, you must buy this, this and this. It happened to me with my mortgage insurance and my mortgage.
Another point is that they are also using that position to bully brokers. Later on, when others appear before this committee from our industry across the country, you will hear some anecdotes about brokers who have been told by the very institutions they borrow from that they cannot obtain those extensions of credit. When asked why, they are told, "Well, we are going to get into your business shortly, why would we support our own competitor?" Our answer is, "Why are we going to give you our client list? Why are we forced to provide you with all the data?"
Senator Kroft: On the issue of dependence on banks for financing, how much of the financing of a typical brokerage is available, if someone chooses it to come from an insurance company as opposed to a bank? If we have change, would we move in the direction of insurance companies buying the brokerages and not the banks? In other words, I am questioning the position that there is a total reliance by the brokerages on the banks.
Mr. Ball: I would never think to go to Mr. Cooke and ask him for a loan, other than if he was going to help me purchase another brokerage. However, in terms of a line of credit or some other things, I do not wish to be in the undue position of having to give business to Mr. Cooke. I might be if he were providing my financing.
I would prefer to remain independent and receive my financing from an independent source, not tied to the insurance companies with which I do business.
The Chairman: I assumed that the witnesses tonight had no objection to the life insurance companies being allowed into the P and C business, since their entire attack has been based on coercive tied selling by banks and since the report talks about collapsing the barriers across the whole system. I am not sure on the basis of the last answer, but my assumption had been that they had no objection to life insurance companies getting into the P and C business.
Senator Tkachuk: When we talked about the bill in Quebec, the MacKay task force report says that under present conditions and with no special laws, competition would be unfair if branches were allowed to sell P and C and life insurance; is that not what it says?
Mr. Toole: Are you referring to tied selling laws and coercive selling and consumer protection laws?
Senator Tkachuk: They are admitting in the task force report that, under present circumstances, competition would be unfair if branches were allowed to sell insurance.
Mr. Toole: That is correct.
Senator Tkachuk: From our point of view as a committee, we must say that we want to do something for the banks to allow them to get into the business; right? In other words, we do not care who is in the business, providing that it is a level playing field. I think we are being asked to recommend or to make comment on whether we should have the government pass special legislation so that banks can get into your business through the branch system. They can already be in your business, but this is through the branch system.
Mr. Toole: That would require special legislation.
Senator Tkachuk: Why do you think the MacKay task force would recommend that we go through all this trouble to have a branch sell insurance?
Mr. Ball: The banks have asked them to; the banks want to retail insurance. Obviously, if the banks have asked the MacKay task force, and have been vociferous over the last 10 years about retailing insurance, then the task force must examine whether they should be allowed to do so. We are saying that it is fine for them to do that. However, in doing so, the task force did not take our industry into account. They did not look at how competitive it was. They did not do any studies to justify why they would allow banks to retail insurance, especially when we know, as you mentioned, that all this regulatory environment will need to be put in place to protect the consumer when the banks are given this power.
Senator Tkachuk: I will make the statement again. I have trouble with a person who is selling insurance also giving the okay on someone's mortgage. I do not think that is fair competition, and I do not know how any law in the world will prevent that. I am struggling with that. No one has convinced me that it will not happen, and it should be our responsibility to ensure that situations do not develop where it does happen. I do not see people in front of the legislative buildings and parliament buildings saying, "Let those banks sell insurance."
Mr. Toole: That is what we said in our opening statement. Consumers are not asking for it. Our small business clients are not asking for it. Chambers of commerce are not asking for it. Who is driving this? The banks have been driving this all along.
The Chairman: Gentlemen, thank you for attending. We appreciate you taking the time to be with us.
Senators, I should like to read into the record a letter that I received today from John Palmer, the Superintendent of Financial Institutions. This was an outgrowth of the discussion and the motion passed by this committee last week. In contrast to the way the issue was handled last week, I did tell Senator Tkachuk in advance of the meeting that I had received this letter so that there would be no surprises. The letter reads as follows:
Dear Senator Kirby:
I have been advised that your Committee would like me to appear to discuss circumstances surrounding the departure of Mr. Bernard Dussault, OSFI's former Chief Actuary.
I welcome the invitation and, in many ways, would like the opportunity to ensure that all sides of this story are aired. However, there are serious limitations on what I could tell you at such an appearance, under present circumstances.
Mr. Dussault has engaged counsel and has announced that he would be taking legal action against OSFI. Further, as a result of some of Mr. Dussault's recent comments to the media, I have launched an action against him for defamation. Therefore, my comments and answers to questions would have to be restricted to those which I gave at a press conference on September 30. If you would like a copy of my September 30 press statement or my subsequent press release concerning the defamation action against Mr. Dussault, please contact my office.
Once all legal processes are behind us, I would be very pleased to appear before your committee and provide a fuller account of the circumstances leading to Mr. Dussault's departure.
Yours very truly,
John Palmer Superintendent
Keeping in mind the longstanding tradition of parliamentary committees, both Senate and House of Commons, of not proceeding to deal with issues that are sub judice, as this one is, on the basis of that letter a motion has been drafted which will be distributed now. Senator Kroft will speak to it, but the motion essentially suggests that we not proceed with having Mr. Palmer appear before the committee on this issue.
Let me be clear. Mr. Palmer is still scheduled to appear before this committee in his capacity as the Superintendent of OSFI to testify in relation to our current set of hearings on the MacKay task force. However, he will not appear in relation to the motion that was introduced and passed by this committee in my absence and in the absence of several Liberal members last Thursday until such time as the legal issues have been dispensed with.
Senator Tkachuk: Mr. Chairman, yes, I was told about this letter as a result of my call to you this afternoon in which I apologized for the fact that the motion was introduced and I had not informed your office of that. At the same time, Mr. Chairman, you did not tell me you would be presenting a motion, so we will just call it even.
The Chairman: I did say to you on the phone, though, that therefore we would have to decide tonight. I did not have the motion written at the time. I said that we would have to decide tonight that we would not call him.
I do not care about the formal nature of the motion before you. I would like a decision of this committee that we do not proceed with addressing questions on this subject to the superintendent until such time as the legal issues have been dealt with, at which time we would enthusiastically bring him back on that issue.
Senator Meighen: I moved the motion at a time when I had no knowledge that the matter was sub judice.
The Chairman: I understand you did not know that at the time.
Senator Meighen: Presuming that Senator Kroft is moving the motion, I would be more than happy to second it. It was, as you know, the unanimous feeling of the committee. I would hope that this would be unanimous as well.
Senator Kelleher: For clarification, this motion says that we required him to appear. I thought it was an invitation.
The Chairman: You are correct. Rather than worry about the exact phraseology, there is a motion of some sort introduced by Senator Kroft and seconded by Senator Meighen, essentially saying that as long as the matter is sub judice, we will not address questions on this issue to Mr. Palmer. However, as soon as the courts have dealt with the issue, we will invite him back to discuss it.
Senator Tkachuk: Who moved this motion? Senator Kroft?
Senator Stewart: I do not know that the motion has actually been moved.
The Chairman: I said that I had drafted a motion and that Senator Kroft would move it. I am also happy to do it much more informally.
Senator Stewart: Since there seems to be some difficulty, we would take this as notice of the motion.
Senator Kroft: I am prepared to move the motion if that would advance the case.
The Chairman: I am happy to proceed as normal. I sense there is a view of the committee that we would simply not proceed to deal with this issue. We do not need a motion. As long as that is the understanding, I am happy to live with it.
Senator Tkachuk: I should like to ask a couple of questions. It seems that the motion was passed, and then Senator Kirby or his office obviously immediately sent out the invitation. We have a reply from John Palmer saying that he understands that we would like him to appear. We did ask him; we did not demand he attend.
The Chairman: That is correct.
To be clear, I was away at that time. My assistant phoned Mr. Palmer on Thursday or Friday and told him that this motion had been passed. He said, basically, that he would be delighted to attend, but he was in the midst of a lawsuit. When that message was conveyed to me, I sent a message back to Mr. Palmer saying that the position of the Senate and parliamentary committees is that we would not request that he appear, but would he give us something in writing so that we could understand the facts.
Senator Tkachuk: Is this in response to the lawsuit that was launched? Whose lawsuit is it?
The Chairman: There are two separate lawsuits. There is a wrongful dismissal lawsuit.
Senator Tkachuk: Which has not yet been entered into.
The Chairman: According to this letter, it has been. Mr. Palmer is suing Mr. Dussault for defamation.
Senator Tkachuk: That would have nothing to do with the taxpayers' money. That is a private matter, is it not? He is not suing on behalf of the government, but personally.
The Chairman: He is suing personally. However, the issues that are of concern relate directly to this case.
Senator Tkachuk: I refer, Mr. Chairman, to Beauchesne's Parliamentary Rules and Forms on sub judice. Citation 335 states:
Members are expected to refrain from discussing matters that are before the courts or tribunals which are courts of record. The purpose of this sub-judice convention is to protect the parties in a case awaiting or undergoing trial and persons who stand to be affected by the outcome of a judicial inquiry. It is a voluntary restraint imposed by the House upon itself in the interest of justice and fair play.
Citation 336(1) states:
The sub-judice convention has been applied consistently in criminal cases.
Citation 337(2) states:
In civil cases the convention does not apply until the matter has reached the trial stage.
Here we have a situation where Mr. Dussault has not, as far as I can tell from this letter, actually sued the government yet. He is just talking about it and has engaged counsel. The other matter is that Mr. Palmer is planning to sue Mr. Dussault, but it is a private matter. It is not a matter that concerns the Government of Canada. I do not think he can use this excuse. If he has some other reason for not appearing, then he should indicate that to us. I think that would be fairly legitimate. He does not have a case to make to a committee of Parliament.
Senator Kroft: This was an invitation.
The Chairman: That is correct, it was.
Senator Kroft: Which implies the spirit with which we were hoping this conversation could take place. Literally everyone around this table is more experienced in matters of this committee than am I. It seems to me quite obvious that if you want to have a productive, positive and constructive discussion, you have it at a time when he is free and without impediment.
I am prepared to move the motion, if it is felt necessary. I seek the advice of the chair on that.
The word "require" is not in the body of the motion in any case.
The Chairman: I am also happy to proceed with where I thought we were, which is that there was an understanding on both sides of the table.
Senator Tkachuk: I do not think the motion is necessary.
The Chairman: As long as it is clearly understood that that is the understanding, I do not think a motion is necessary either.
The committee continued in camera