Insurers question need for review

The Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations’ (CISRO) Industry Practice Review Committee have released a summary of responses to a much debated consultation paper published this summer, and the results embody the frustration the industry has with the review.

An overwhelming number of industry stakeholders questioned the need for a review in the first place. Of the 69 responses, 16 said there is no problem to be “fixed,” 12 indicated there were already legislation and codes of conduct in place to prevent abuses, while seven said consumers are happy with the current structure, noting the absence of enquiries and complaints.

The criticism didn’t end there. Nine respondents said that both the Canadian Life and Health Insurance Association and the Insurance Bureau of Canada have introduced initiatives to provide additional customer information, so it would make sense to wait for a period of time to give the industry a chance to fully implement these initiatives before considering further action. Another eight believed there was sufficient degree of competition in the insurance market to prevent abuses.

For those keeping track, 52 of the 69 responses, or 75%, came out strongly against the review. The remaining respondents still had concerns, but were less harsh in their criticism.

It’s no wonder, then, that of the five main themes identified in the responses by Ontario’s insurance regulator, FCSO, the first one was why conduct a review in the first place?

It’s a valid question, says Grant Swanson, executive director of FSCO’s licensing and market conduct division, which helped analyze the submissions. While the paper was a response to investigations and legal actions against a number of insurers, brokerages and individuals involving alleged fraudulent, coercive and dishonest practices in the sale of insurance products in the U.S., Swanson believes it is important to at least ask if conflicts of interest are being managed here in Canada.

“Conflicts exist anywhere,” he says. “The paper simply allows them to put that question to the industry.”

And as the committee noted in its analysis:” The issue is not whether conflict of interest exist, but how to ensure they continue to be managed in a standard appropriate for today’s marketplace.”

The other four themes FSCO identified from the submissions include: whether the term independent needs to be defined; if the client’s interest be spelled out; if performance linked benefits — like contingent profit commissions — lead to conflicts of interest; and, if there is a case for more disclosure.

The second theme — should independence be defined — highlighted the differences between the various insurance intermediaries view themselves and their place in the industry. Managing general agents, for example, felt the wording of the paper seemed to lump them in with brokers and agents.

But MGAs say their role is different and that few people recognize this. To that end, one submission to the committee signed by six MGAs was largely devoted to defining their role of MGAs in the insurance industry and how their business is different from retail agents and brokers.

“The one thing that we found was that there were many different views about what independents meant,” says Swanson. However, despite ongoing concerns about what constitutes an independent, in the committee’s view it may not be necessary to make that distinction. As Swanson explains, “The courts have basically found that the duties of agents and the duties of brokers towards their clients are pretty much the same.”

He continues. “When we looked at case law and found that the courts were essentially treating the responsibility of agents and brokers to clients being essentially the same, a question can be raised, if the duties are essentially the same, how critical is it to define what independence is?”

The industry is already worried about possible fallout from this review. In early November at the IFB’s fall summit in Toronto, Leslie Byrnes, vice president of distribution at the Canada Life and Health Insurance Association, warned if these practices “are not implemented on a voluntary basis, they’ll be regulated. If it’s regulated, it may have bells and whistles that we don’t have much control over.”

But the industry won’t know if the committee will make any recommendations for at least several months.

This just completes the fact finding stage of this process, says Swanson. The committee will look at the five themes outlined in the recently released summary of responses and decide if any recommendations should be made to CCIR and CISRO. They will decide if any new regulations need to be implemented with they meet in the spring of 2006.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(11/10/05)

Mark Brown