TD gears up for business insurance launch

Its insurance arm is looking to debut small business cover this year, TD group president and CEO Bharat Masrani confirmed in TD Banking Group’s Q4 (ending October 31, 2022) earnings call.

“Our insurance business is focused on leveraging its competitive strength and intends to expand its services into an underserved market by launching small business insurance in 2023,” Masrani said in the call with analysts and investors.

Insurance and wealth “significant and growing” for TD

It’s a move that some brokers believe TD is likely to have been mulling for some years and comes as TD has made changes that suggest it sees its insurance and wealth business swelling in importance.

It began moving towards a new operating model in 2022 and small business insurance is a “natural extension” for significant growth, TD said in its latest annual report.

Currently, it provides personal and auto insurance through direct channels and to members of various affinity groups; over 20% of its direct-to-consumer new sales in Q4 were done digitally, Masrani has told investors. Its other products include life, health, and travel cover, with insurance having contributed revenue of $5.2 billion in 2022, a near 7% increase year-on-year.

Effective Q4, TD established a wealth management and insurance reporting segment, serving approximately six million customers across Canada and described as a “significant and growing contribution to TD’s success” by Kelvin Tran, TD Bank Group senior vice president and chief financial officer, in an October 28 press release.

TD Insurance small business entry could “make a lot of sense”

Building on its personal offering, a TD Insurance entry into small commercial would “make a lot of sense” for the business, according to Zensurance CEO Danish Yusuf.

“It’s a really attractive market if you can figure out how to process it efficiently,” Yusuf told Insurance Business. “And competition is great for everybody – the more people you have going after a segment, the more it forces everybody to raise their game.”

TD could look to start small, with micro and smaller businesses, and has an opportunity to make the most of already being a supplier to affinity groups, Yusuf said.

“It would pose a good synergy for them; they have the relationship, they know the members, if they have the authorization to market additional products, that would be a natural thing for them to go after,” he said.

The market may be calling out for more competition, according to Yusuf, but the proposition would not be launching into an arena without challenges, from talent, to customer choice, to underwriting nuances.

“If they’re setting up a new shop, and they have to hire 100 good people, that’s a really hard thing to do – so just attracting the right talent, they’re going after specific expertise, which is in high demand,” Yusuf said.

One “challenge for direct writers across the board” continues to be being able to offer a customer the same level of choice as a broker, Yusuf said.

Should TD target rapid growth, it will also have to contend with building a book across multiple industries, sub industries and provinces.

“What makes small commercial really hard is, there’s millions of permutations you have to think about,” Yusuf said. “There’s a reason it’s underserved.”

Small business insurance in Canada – an underserved market

Small businesses made up just over 98% of employer businesses in Canada in 2021, employing 10.3 million individuals, according to Statistics Canada.

In a 2022 Zensurance online survey of small businesses, nearly 40% of 222 survey takers said they did not have a business insurance policy, feedback that Yusuf said at the time was “troubling”.

Ninety-three per cent (93%) of Canadian small and medium-sized enterprise (SME) owners would consider buying their next insurance product from a source other than an insurer or intermediary, with banks topping the alternatives, according to 2021 Deloitte research.

How else might Canadian small businesses look to buy their insurance?

Deloitte surveyed 502 Canadian SME business leaders on whether they might look to purchase their next policy from a source other than an insurer or intermediary. The top three alternatives were:

Banks topped the list of likely alternative providers, with 36%
Major technology companies (for example Google) came in second with 24%
In joint third, 23% of respondents said they would consider purchasing a policy from a credit union, or from a price comparison website

The separation of banking and insurance

Any growing role that banks could play in the future of insurance, though, would have to be within the limits of the Canadian Bank Act.

While banking groups can sell insurance products through subsidiaries, restrictions under the Act, including on in-branch sales, are intended to maintain a level of separation between banks and insurers. With a review of the Act due in 2023, the 2021 federal budget proposed an extension to 2025 to consider the COVID-19 pandemic’s impact.

The legislation has been described as safeguarding “the interests of insurance consumers” by Insurance Brokers Association of Canada (IBAC) CEO Peter Braid.

Over time, “we hope to offer our clients more integrated functions with TD Bank and through online services,” TD has said on an FAQ page for customers.

“Any integration with TD Bank that we initiate in the future will comply with all of the relevant legislation,” it said on the FAQ.

TD declined to comment for this article.

What do you think about TD’s push into small business insurance? Let us know in the comments below.