A proposal to give Canadian banks the power to sell insurance through branches is meeting resistance from insurance brokers and underwriters.

Branch sales powers for banks would drive small players out of the business, eliminate rural jobs or displace them to centralized sales centers, and ultimately limit competition, officials from Canadian insurance organizations said.

They were responding to the release last week of the 260-page MacKay report, which makes a broad range of recommendations to amend Canada's financial services industry.

"If the five major banks were to be given unconditional entry into the property and casualty marketplace, we feel very strongly that the effects on employment would be devastating," said Mark Yakabuski, vice president of government relations at the Insurance Bureau of Canada, a trade group that represents property and casualty underwriters.

Canadian banks have been allowed to sell and underwrite insurance through subsidiaries since 1992, and broadening their powers would enhance competition, the report said. The report, named for Saskatchewan lawyer Harold MacKay, the task force chairman, is to be aired at hearings by the House of Commons Finance Committee beginning today. It claims that broadening the insurance powers of banks would better serve Canadians.

In the study the task force said, "We believe that consumers will benefit from more choice and that to deny choice would be contrary to the public interest." Though the report includes measures to discourage tying loans to insurance and to protect customer privacy, opponents said that the provisions do not go far enough.

"It's about paving the way for the big guys to come in and dominate," George Anderson, president of the Insurance Bureau of Canada, said in a prepared statement.

Mr. Yakabuski said his group believes that monitoring the thousands of daily bank transactions for improper sharing of customer information is impossible. Given the volume of consumer information concentrated in so few banks, fairness concerns arise when those banks are marketing insurance from branches, he said.

"About three-quarters of Canada's banking assets are held by a handful of banks," said Rick Frost, president of the Insurance Brokers of Canada, a trade group representing agents.

The MacKay study was commissioned two years ago to examine issues affecting financial services, such as enhancing competition, empowering consumers, and improving banking regulations. It has taken on greater significance because of two blockbuster merger deals announced by Canada's four largest banks.

The underwriters' trade group estimated that big banks selling insurance from centralized areas will reduce the number of property and casualty- related jobs from 100,000 to about 80,000.

But the report stated that additional competition may expand the industry. "If new competitors are in fact more efficient and offer consumers better value, they will win market share. Some existing jobs may well be lost. But new jobs are likely to be created as the share of new competitors grows."

The Canadian Bankers Association, which has been pushing for the new powers, is pleased with the report and minimized insurance industry concerns.

"On the basic issue, we think MacKay has taken the right position by putting himself in consumers' shoes," said Terry Campbell, the association's director of financial institutions and trade.

The insurance recommendations will give consumers a choice and the advantage of competitive prices, he said. In response to insurance brokers and underwriter concerns, he echoed the report's finding that bank insurance sales have not adversely affected markets in other countries.

However, the insurance brokers group maintained that the recommendations would unfairly benefit banks whose customers have an ingrained belief that a loan approval might be tied to a related insurance purchase, Mr. Frost said.

"You can't regulate human perceptions, and that's basically what we're dealing with here," he said.

That the report found that 16% of Canadians believe a loan or mortgage might not have been approved unless another product was bought from the same institution highlights the problem, he said.

The report recommended dealing directly with any coercive sales issues to guarantee consumers a free choice of insurance products that best fit their needs.

At the end of 1996 Canada's life insurance industry had assets of $171 billion, and the property and casualty industry had assets of $43 billion.

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