Insurance probe expands

(October 29, 2004) Regulatory and public scrutiny continues to intensify in the insurance industry, forcing firms to respond to criticism of common business practices and broker compensation.

On Thursday, the Canadian Council of Insurance Regulators (CCIR) announced it was launching a joint investigation with the Canadian Insurance Services Regulatory Organizations (CISRO) into relationships between insurers and insurance brokers.

Provincial regulators will be probing these relationships, which include ownership stakes as well as contingent commissions and reporting back to the CCIR. These relationships are not illegal, but are regulated. Currently in Ontario, insurance companies must report ownership stakes in brokerages in excess of 10%.

While the public expects unbiased advice from their insurance broker, there are concerns that such relationships could damage consumer confidence in the system. Ownership stakes often come with sales expectations, which in the extreme case of a “captive agency” arrangement can exclude all other firms.

The increased public scrutiny has led the industry to address the issues and defend its practices.

“There has been considerable attention paid in the media to investigations by regulators concerning the insurance industry’s compensation disclosure practices as well as market-distorting activities of certain brokers and insurers,” said Don Stewart, CEO of Sun Life Financial said yesterday in a conference call. “The description of market-distorting activities is very troubling and has no place in our industry. We know of no instance in which Sun Life has engaged in such activities.”

“As for the more general issues surrounding broker compensation, the interests of our customers are paramount,” Stewart continued. “I want to express to them our commitment to adhere to the highest business standards. Sun Life Financial is committed to best practices in governance and transparency for our investors and customers.”

While he said the firm believed its commission structure and business practices were appropriate, Stewart admitted the “regulatory landscape in this arena is evolving rapidly.”

“We accept and welcome a higher degree of scrutiny,” Stewart told analysts and media. “We will be an active participant in discussions that will take place between regulators, the industry and clients about the issue of compensation disclosure and we support the concept of greater transparency around broker compensation.”

Sun Life also announced yesterday that it is restructuring its operations, shifting the bulk of the firm’s asset management businesses to a new subsidiary, effective next year.

Under the reorganization, Sun Life Assurance will transfer its shares of CI Fund Management, McLean Budden, MFS Investments and its other U.S. subsidiaries.

The operations remaining in Sun Life Assurance will consist primarily of the life, health and annuities businesses of Sun Life Financial in Canada, the U.S. and the U.K.

“The reorganization will allow Sun Life Financial to optimize its capital structure by positioning it to benefit from the new capital rules for life-insurance holding companies recently proposed by the Office of the Superintendent of Financial Institutions,” Sun Life said in a statement.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com