As Canada gets closer to implementing open banking, and as more banks partner with fintech companies, the country’s insurance brokers are concerned that the boundaries that separate the insurance and banking sectors may become blurred. 

“As open banking moves forward, any consumer information or data generated from a bank should not be used for insurance purposes,” the Insurance Brokers Association of Canada (IBAC), an organization that represents property and casualty insurance brokers, wrote to the House of Commons finance committee ahead of the upcoming federal budget.

Open banking is a system intended to let consumers securely share financial data with financial technology companies. Consumers will also have greater access to a wider range of financial products and services when it comes into effect. 

Its rollout in Canada, however, has been long delayed. It is now the only G7 country without an open banking system. Despite the delays and ongoing tensions over the system’s design, the government is still pushing for the model’s launch in 2023, according to a memo prepared for associate finance minister Randy Boissonault ahead of a December meeting of the open banking steering committee. The Logic obtained the memo via an access-to-information request. 

In its submission, IBAC said it wants clear limits on data sharing under an open banking framework. “The sharing of consumer information should be limited only to the data necessary for the proposed application, and consumers should be educated on how their data will be shared and used. Even if a consumer gives a bank permission to share their data with other parties, the consumer must still be in control of their data,” the submission said.

In Canada, banks are currently prohibited from selling specific types of insurance, such as home, auto or commercial insurance, at the point of granting credit, said Peter Braid, CEO of IBAC.

If a consumer is sitting across the desk from a bank representative eager to get a car loan or mortgage, the bank representative can’t offer to sell insurance, because the customer is considered to be in a vulnerable position and could feel pressure to buy the bank’s insurance products to get that mortgage or car loan. 

Banks are also restricted from sharing consumer data they collect for banking purposes with the insurance sides of their operations.

Since open banking is unknown territory, and will see new players like fintechs gaining greater access to banking data, it could potentially complicate that clear divide. 

Braid would like to see the data-sharing restrictions maintained under open banking. “This would extend to and include a fintech or insurtech that a bank may own or partner with,” he said. 

That’s because IBAC is also concerned that fintechs could prompt consumers to purchase insurance based on banking data, even though banks are prohibited from doing so. 

“When a bank partners with a fintech, from my point of view, the bank needs to have some responsibility for the business operations of that business partner,” Braid said.

Braid wants that requirement updated in a new set of regulations for the insurance business, which the industry has been waiting on since the Bank Act was amended in 2018 to let banks own or partner with fintechs. 

However, fintechs operating outside of a direct partnership with a bank won’t be subject to any rules, Braid said.

“In this scenario, it will be important that fintech companies operating in an open banking environment are accredited either by Finance Canada or an arms-length body, and meet standards with respect to privacy, security and operational stability,” he said.

“Requests for consumer information should be limited to only the data necessary for the proposed application … and consumers should be able to opt-in and opt-out at any time for features, services or instances of information sharing in an easy and efficient manner.”

Not all insurance groups are on the same page, however, when it comes to allowing banking data to be used for underwriting purposes. 

“If you ask any underwriter or actuary, the most accurate way to underwrite somebody’s risk is by having as much data as possible,” said Steve Masnyk, executive director of the Canadian Association of Managing General Agents. 

Masnyk compares the sharing of information with an insurer to that of a doctor. The more a doctor knows about a patient, the better they’ll be able to help identify what’s ailing them, he said. 

“I don’t follow the logic of having less data to better underwrite an insurance product. The more data you have, the better.”

Igal Mayer, president and CEO of fintech Ratesdotca, which also owns the brokerage Scoop Insurance, said the ability to use banking information for insurance purposes would help level the playing field because it would help insurance companies and fintechs assess risk and offer tailored products. 

Mayer said while banks are not supposed to use customer data for insurance pricing, he thinks they are likely finding ways to work around those rules. “They’re using proxies in their rating algorithms to reward responsible credit and probably provide less rewards and less discounts to folks who’ve had maybe a choppy financial record.”

In Ratesdotca’s case, it would offer the company a leg up. If consumers consent to sharing their banking information when they sign up for its subscription service, that service could notify them whenever a better insurance price comes along, Mayer said. 

While the financial industry is still waiting to see what exactly Canada’s open banking system will look like, the federal government’s advisory committee on open banking did publish recommendations in 2021. 

The committee’s report states that “insurance data is a complex case and banking data should not be used for underwriting insurance policies as part of the initial scope of open banking. Future consideration of open banking should evaluate potentially discriminatory or inequitable outcomes in insurance availability and coverage in order to ensure consumers would be protected.”

The words “initial scope” were a red flag for Braid. He told The Logic that after seeing that language, he raised concerns with Finance Canada and pushed for banking and insurance to continue to remain separate. 

“There was no suggestion or indication that they are considering or contemplating changing that [separation] in subsequent phases of open banking,” he said.

With files from Murad Hemmadi in Ottawa