Insurance regulators release fair treatment of customers guidance governing incentives

The Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) released new fair treatment of customers (FTC) related guidance on incentives management, setting out expectations for insurers and intermediaries who pay compensation and design incentive arrangements.

Designed to complement the CCIR-CISRO guidance, Conduct of Insurance Business and Fair Treatment of Customers, the incentive management guidance is intended to ensure incentive arrangements align with principles set out in that document. The regulatory organizations say the guidance provides insurers and intermediaries with the discretion necessary to devise strategies, policies and controls based on the nature, size and complexity of their businesses.

A shared responsibility 

“While both insurers and intermediaries have a shared responsibility, the insurer bears the ultimate responsibility for fair treatment of customers through to the end of a product’s lifecycle,” they write in a statement, announcing the start of a 45-day consultation period on the document. They add that “the insurer’s ultimate responsibility does not absolve intermediaries of their own responsibilities for which they are accountable. Treating customers fairly is a shared responsibility when insurers and intermediaries are both involved.” 

Applies to all insurance products 

The organizations say FTC guidance originally implemented in 2018 was followed up with stakeholder feedback requesting further direction on the application of FTC principles to incentives. “CCIR and CISRO concluded that some incentive practices may present risks to the fair treatment of customers and that there was insufficient evidence that these risks were being properly managed,” they write. The new guidance, they add, applies to all insurance products and distribution channels.

The document discusses governance, saying the overall responsibility for FTC is at the board and senior management level. It sets out the regulator’s expectations for the design and management of incentive schemes and states that stakeholders are to regularly identify and assess the risk of unfair outcomes to consumers that may arise from incentive arrangements so appropriate controls can be introduced or so the arrangements can be adjusted. Post-sale controls are also examined, as are incentive arrangement components that regulators suggest may increase the risk of unfair outcomes for customers without proper design, management or post sale controls.

Reducing the risk of unfair outcomes 

“CCIR and CISRO expect insurers and intermediaries to design and implement incentive arrangements that include criteria ensuring FTC,” they write. “Insurers and intermediaries are responsible for the customer experience. If incentive arrangements are properly designed and implemented, they can reduce the risk of unfair outcomes to customers.” 

The deadline to provide written submissions regarding the document, Incentive Management Guidance, is April 4, 2022.