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TD Canada Trust bank at Yonge and Eglinton, Toronto. August 27, 2013.Gloria Nieto/The Globe and Mail

From natural disasters to low interest rates to regulatory changes, the insurance business has been a challenge to navigate in the past year.

But the challenging operating environment doesn't make Toronto-Dominion Bank's insurance division any less valuable, according to the bank's chief executive Ed Clark.

In fact, TD's property and casualty insurance and life and health insurance businesses will play a significant role in the bank's customer retention in coming years, Mr. Clark said. The bank's position as the largest direct-response (selling insurance directly to consumers without outside agents) home and auto insurer is particularly valuable, he said.

"When we own every part of the customer, that makes that customer stickier," Mr. Clark said at Royal Bank of Canada's Canadian bank conference this week. "I think all five [Big] Banks would tell you that's how they play this game."

The next decade will bring on a "great battle" for the Canadian baby boomer, Mr. Clark said. Banks are expecting that as boomers age they will consolidate their relationships with their financial service providers – from investments to personal banking to insurance – and TD wants to retain as many current clients as possible.

"The more things they do with you, the more they are likely to end up saying, 'Why don't I just go to TD?'," Mr. Clark said.

For banks, the insurance business has to be run somewhat separately from the banking business. Canadian regulations prevent banks from selling or marketing most insurance services in bank branches. Banks also cannot advertise links to their insurance divisions' websites on their banking homepages.

But lately, industry issues have made TD's insurance business look less attractive. Insurance earnings were down about 60 per cent per cent in the bank's 2013 fiscal year, after the business took losses related to weather related disaster damages and higher general insurance claims. The operating environment for auto insurance is an issue for the bank, and management has said it will "continue to refine [its] business model."

Other property and casualty insurers had their own troubles in 2013. Intact Financial Corp. – the largest P&C insurer in the country – took its first underwriting loss in a decade related to severe weather, for example. The Bank of Montreal said a pick up in interest rates would boost its life insurance business. And RBC's insurance arm took a $160-million charge related to tax changes.

RBC and TD as well as other companies also faced consumer backlash over rejected damage claims in Alberta this summer. The public relations nightmare that followed may have damaged their brands.

Calgary offered lessons to TD, Mr. Clark said. Banks may have more at stake than other P&C insurers because their customers are often banking clients as well, so relationships have added value.

"All the other insurers are just dealing with insurance clients. We are dealing with TD clients," Mr. Clark said. Because of that overlap, "when you're adjudicating a settlement, you have to recognize that you're dealing with a core client. And so, you have to run your insurance company different than the other insurers, and there's a cost to that."

But despite all these challenges, Mr. Clark said he would give up the business "pretty reluctantly."

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SymbolName% changeLast
BMO-N
Bank of Montreal
+1.35%97.68
BMO-T
Bank of Montreal
+1.13%132.25
IFC-T
Intact Financial Corp
-0.2%220.04
RY-N
Royal Bank of Canada
+0.48%100.88
RY-T
Royal Bank of Canada
+0.29%136.62

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