Jil Macdonald

Chief Operating Officer

Lenders and Insurance: A Path to Stability in Uncertain Times

The Canadian lending landscape is currently navigating a period of uncertainty. While it may not be a full-blown downturn, there are challenges ahead. Traditional revenue models relying solely on interest income are being tested. Fewer Canadians qualify for standard loans, and many are hesitant to take on more debt given the precarious state of the economy. Additionally, lending institutions are contemplating higher-risk lending practices to adapt to changing demand and borrower profiles.

In the pursuit of diversifying income streams to counter the decline in loan origination, insurance emerges as a potential solution.

Embedded insurance, which offers turn-key solutions to incorporate personal and commercial insurance lines under your brand, presents an opportunity to provide customers with essential protection against life’s unexpected events. This can be done through an institution they trust while generating supplementary revenue for your company as a co-distributor of these products.

Beyond the financial benefits, there are several advantages to adding an embedded insurance division to your standard lending operations. Recent advancements in technology and business models have made this transition smoother than ever:

Revenue Stability: The financial industry experiences cyclical fluctuations due to changes in interest rates and economic conditions. By integrating insurance services, financial institutions can establish a dependable income stream less vulnerable to interest rate shifts. Insurance premiums offer a steady and predictable source of revenue, contributing to the overall stability of the institution’s finances. Leading Canadian lenders are already embracing this diversification strategy, as insurance has demonstrated profit margins more than twice that of credit cards, with insurance contributing 11% to RBC’s top-line revenue.

Enhanced Customer Loyalty: For lenders aspiring to be beloved consumer brands, offering insurance products can bolster customer loyalty and retention. When customers can access borrowing and insurance services from one institution, it simplifies their financial life and strengthens their connection with the institution. In fact, a customer is 25% less likely to leave a financial institution they have a relationship with if they’ve purchased an insurance product from that institution.

Elevating Brand Reputation: Expanding into insurance can enhance a financial institution’s brand reputation. It demonstrates a commitment to comprehensive financial well-being and positions the institution as a full-service financial provider. A strong and trusted brand can attract new customers and foster loyalty among existing ones. Notably, retail brands like PC and Costco are already capitalizing on this opportunity, along with many lenders.

Cross-Selling Opportunities: An insurance division opens doors to cross-selling opportunities. Financial institutions can leverage their existing customer base to market insurance products, such as life insurance, home insurance, or auto insurance. Customers who already trust the institution for their financial services are more inclined to consider insurance products from the same provider. Cross-selling not only increases revenue but also deepens customer relationships.        

Risk Mitigation: Insurance inherently involves managing and mitigating risks. By offering insurance products, financial institutions can engage in risk management not only for their customers but also for themselves. For instance, offering creditor insurance can help protect the institution from loan defaults in the event of unexpected life events for borrowers, reducing credit risk. Furthermore, embedded insurance technologies enable mortgage or HELOC providers to offer home insurance at the point of sale, protecting assets and generating recurring revenue.

Competitive Advantage: In a competitive marketplace, financial institutions constantly vie for a larger share of the customer base. Adding an insurance division can provide a significant competitive edge, differentiating the institution from competitors that offer only banking services. This is exemplified by leaders in the field such as TD, who continually market and engage their growing customer base to augment and grow the insurance division.   

Innovation Opportunities: The intersection of finance and insurance offers ample opportunities for innovation. Financial institutions can explore new product offerings, digital solutions, and partnerships with insurtech companies to stay at the forefront of industry trends and cater to evolving customer needs. Consider using a lending institution’s data to create a fully digital, “add-to-cart” style experience for adding creditor insurance to a loan.

Partnering to offer insurance within a financial institution is a strategic move that offers numerous advantages. It diversifies revenue streams, enhances customer loyalty, opens up cross-selling opportunities, and mitigates risk. Moreover, it provides a competitive edge, aligns with existing regulatory frameworks, and fosters long-term financial growth. Customers, particularly millennials, expect seamless, fully digital experiences integrated with trusted brands, making these opportunities a way to delight customers with modern solutions while achieving financial differentiation.

About the Author: Jil Macdonald is the Chief Operating Officer at Walnut Insurance, a North American leading Insurtech. With over 15 years of experience in digital development, Jil has delivered over 200 products and achieved $285M+ in industry savings across the financial, agricultural, health, and energy sectors.

Join the conversation in-person and be apart of the ongoing innovation in lending:

2023 Lenders Summit

Engaging with the organizations leading and innovating within the sector and beyond makes the upcoming 2023 Lenders Summit a must attend event. Taking place on November 1st at the MaRS Discovery District in downtown Toronto, the focus of the event will be on networking, partnerships, and driving innovation in the lending sector.

From Banks and Credit Unions to best-of-breed vendors from the fintech ecosystem, the 2023 Lenders Summit is the hub for networking and business partnerships across all consumer and commercial sectors. Main themes include fraud technology, Identity Verification (IDV), financial data solutioning and supporting new-to-Canada and new-to-Credit.

View the agenda and register your organization here