Life insurers facing deadline

(December 14, 2004) Canada’s life insurance firms have until the end of the week to complete a detailed questionnaire on their business practices, including how advisors are compensated.

The 37-question document was sent to firms earlier this month by Ontario’s insurance regulator, the Financial Services Commission of Ontario (FSCO), which is collecting information from across the country on behalf of the Canadian Council of Insurance Regulators. Companies are asked to indicate whether answers differ between lines of business or by jurisdiction.

The questionnaires must be completed and delivered to FSCO by December 17. The only exception is Quebec, which is conducting its own review of firms based in that province.

“The first phase of this review is to obtain a comprehensive understanding of the environment and controls around compensation to sales intermediaries and financial linkages between insurers and sales intermediaries,” FSCO says. “Once the responses have been received, the results will be studied and key areas identified for further review.”

Insiders note that the questionnaire is far more detailed than a similar document sent to the country’s property and casualty (P&C) insurance firms last month. Three pages of the FSCO survey are devoted to issues surrounding compensation. For example, one question inquires whether contracts result in varying rates of compensation due to “triggers,” such as volume, profit and growth, among others. Another asks whether compensation disclosure is standard practice, done voluntarily or only at the client’s request.

Last month, the Insurance Bureau of Canada (IBC) announced that P&C insurers will be required to provide full disclosure on their websites by January 1, 2005 of information concerning the way in which all sales intermediaries are compensated.

“We recognize the need for clarity to help consumers make informed and confident choices when they buy insurance,” said IBC president Stan Griffin. “Regulators have always had the responsibility of collecting information on how insurance representatives are paid. Today’s initiatives will put this information directly into the hands of consumers.”

Many on the life side, however, don’t think they’ll be required to provide that level of compensation disclosure.

David Barber, president of the Independent Financial Brokers of Canada (IFB), says unless there’s a significant groundswell of anger from the media or the general public over agent compensation, he expects to see only “minor fine tuning” requirements from the regulators.

“We are confident that our present methods of compensation in the life insurance industry are above reproach and believe that unless otherwise made evident, the regulator shares our opinion in this regard,” Barber wrote recently in Advisor.ca’s Talvest Town Hall.

Advocis chief operating officer Terry Taylor agrees. “Most reasonable people will expect that an advisor will be compensated for the advice they give,” Taylor told Advisor.ca earlier this month. “I don’t think there’s anything wrong with the [compensation] structure, I think it’s easily defended.”

FSCO has a team of six staff working full-time on the questionnaire project and expects to issue a response in the new year, although no target date has been set.

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