Life insurance industry beefs up compensation disclosure standards

(December 21, 2004) Canada’s life and health insurance industry today released a package of reforms aimed at boosting consumer confidence and increasing transparency. The initiatives include a requirement that life agents disclose how they are compensated.

“We’re saying that the customer will receive a disclosure document covering how intermediaries are compensated, including possible eligibility for non-monetary incentives,” says Greg Traversy, president of the Canadian Life and Health Insurance Association (CLHIA). “The intermediaries will be the point of disclosure regarding compensation.”

The disclosure document — produced following consultation with Advocis and IFB, Traversy notes — will explain the intermediaries’ relationship to the firm, how they are compensated and whether there are any conflicts of interest.

CLHIA will also require insurance firms to review their compensation structures and practices on a regular basis.

Current federal standards for insurers already entail reviews of structures related to compensation of employees, CLHIA adds. “Over the period ahead, the industry will be taking action to extend such reviews to cover the entire range of sales-related compensation practices and to require that customer interests be considered in the course of those reviews.”

In addition, insurers that offer travel incentives must make disclosure a condition of eligibility. “Travel incentives can be an appropriate form of non-monetary compensation for performance,” CLHIA states. “At the same time, customers should be aware of the possibility of such compensation.”

Traversy says the association looked at travel incentives closely, considering the controversy such incentives created in the mutual fund world. “We decided that from a consumer point of view, does the fact that a trip also involves a learning experience really matter? What’s really relevant is being aware up front that the intermediary might qualify for some kind of travel incentive based on the sale of products.”

For consumers, CLHIA is adding new product disclosure guidelines so that clients know the main benefits offered by the product, as well as its principal features and benefits. “Life and health insurers and their intermediaries already provide extensive information to their customers at point of sale. New standards developed over the past two years will build on existing practices to help ensure key features are covered.

The reforms come as FSCO, Ontario’s insurance regulator, reviews the results of a detailed 37-page questionnaire on compensation practices sent to the country’s insurance firms earlier this month.

Traversy insists CLHIA’s new requirements are not an effort to get ahead of the regulator, but are simply part of a long tradition within the life and health insurance industry aimed at protecting consumer interests.

“There are emerging concerns in this area, so we said let’s get out and do some things now to make sure that we are — and are seen — to be moving to protect our customers’ interests. The regulator will have to decide what kind of follow-ups to do and that’s their job. Some of that might lead them to come back to elements of this package, we don’t know. It wasn’t a specific response to the questionnaire; it was our broader tradition that was the real motivating factor.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com