A recent report by regulators on incidental insurance sales has fallen short of industry expectations. The working group that examined this issue concluded that requiring a permit to sell incidental insurance would be desirable, but made no recommendations to this effect, to the disappointment of several industry players.
The Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) filed the report following a consultation that started in February. The task force received 34 submissions from industry stakeholders.
Incidental selling of insurance (ISI) refers to sales outside the certified representatives network. Examples include insurance products offered by automobile dealers, travel agencies, mortgage loan brokers, retailers and credit insurance offered by financial institutions.
Because there is no legal definition of ISI in most Canadian provinces, the working group considered the definition in force in Quebec. Section 408 of the Act respecting the distribution of financial products and services states, "A distributor is a person who, in pursuing activities in a field other than insurance, offers, as an accessory, for an insurer, an insurance product which relates solely to goods sold by the person or secures a client's adhesion in respect of such an insurance product."
Dan Danyluk, CEO of the Insurance Brokers Association of Canada (IBAC), an organization for general insurance brokers, says the CCIR has missed an opportunity to fill the gap in the law related to unlicensed sales. In his view, consumers have the right to do business with a licensed and experienced professional. "In light of the consequences we have seen in financial markets worldwide resulting from poor oversight and laissez-faire regulations, the CCIR should reconsider its recommendations in order not to leave consumers open to abuses in their insurance needs," he says.
Peter Tzanetakis, senior director, regulatory affairs, at Advocis, a financial advisors' association, is disappointed to see that the report does not recommend that incidental insurance sellers hold a permit. He admits, however, that the report is a step in the right direction.
"Our position has consistently been that licensing, which provides individual accountability for individuals and greater consumer disclosure, is the only way to truly enhance consumers' protection," he adds.
Susan Allemang, head of regulatory affairs at the Independent Financial Brokers of Canada (IFB) agrees. "We think that sellers should be licensed like anyone else who sells insurance and that makes them subject to the same market conduct rules and the same requirements to put the needs of the consumer first," she says.
The report also notes that consumers cannot make an informed decision when they buy an incidental insurance product. The group adds that should the regulatory authorities adopt these recommendations, consumers would be better able to make a sound decision.
Mr. Tzanetakis points out that even if all the recommendations contained in the report had the force of law, consumers would still be on their own when it comes to evaluating their eligibility for an incidental insurance product. "The onus would still be on the consumer to assess the suitability of the product. We believe that the onus should be on the seller because they are the ones informed about the product, the services and what scope of potential other products are in the marketplace," he says.
The report also covers post-claim underwriting. Currently, consumers must assess their own eligibility for an incidental insurance product. If they do not correctly size up these risks, the policy may be cancelled by the insurer because the buyer's responses are validated after the insurer receives the claim.
The industry prefers to use the term "claim investigation" to refer to weighing the merits of a claim. This practice closely resembles post claim underwriting, says Ms. Allemang of IFB. "Down the road, the client can end up in the same situation. They are calling it something different, but I don't see how it's any different to the consumer in the end."
The working group also notes that ISI documents are often too complex for the average consumer. It proposes that documents be written in plain language but did not specifically recommend that this approach be stipulated in a regulation.
Mr. Tzanetakis finds the ISI process confusing for consumers. "Right now, there is some confusion on the consumer side as to what exactly is the underwriting process for ISI. That needs to be explained to the consumer in some form of plain language so that they are made clearly aware of the consequences of improperly filling the forms," he says.
"It's one thing to provide documentation on a product or service and another to get things explained to you as part of the suitability assessment which is something that professional advisors do with their clients," he continues.
In terms of training, the working group suggests that insurers train their call centre staff properly to answer consumers' and sellers' queries about incidental sales. The working group adds that "information should be provided to consumers in order to advise them of the potential relevance to consult with an insurance professional if they feel it is necessary and to inform them of the existence of potentially similar products offered through different channels."
