Compliance rules have expanded their scope. They now cover accounting, actuarial practice, risk management and governance. To face the challenges of compliance, insurers must stop rivalling and join forces.

Richard Gagnon, president of the Regroupement des assureurs de personnes à charte du Québec and president and CEO of LS Mutual Life issued the call on Nov. 16 during his talk at the President’s Luncheon, part of the 2011 Insurance and Investment Convention.

“The rules of compliance that we must follow are increasingly universal, stringent and, depending on the regulatory authority, unavoidable. Even if they are sometimes a poor fi t to our Canadian reality. The application of International Financial Reporting Standards (IFRS) is in some respects an eloquent example,” Mr. Gagnon explains.

“This new reality is mobilizing considerable resources. Financially, of course, but also in terms of time that executives and boards of directors must spend on this, to the detriment of analysis of other strategic issues for the company, in many people’s view,” he continues.

Mr. Gagnon sees one solution to the problem: insurers have to stop working in isolation and learn to cooperate. “I’m not sure that we have reached peak effi ciency to face this situation. In many respects, these new rules accentuate the need for collaboration among insurers and distributors in the offering of fi nancial products and services to the public.”

“The recent Autorité des marchés fi nanciers (Quebec's fi nancial markets regulator) guidelines on outsourcing or those on commercial practices, which have been discussed for a few years, have led us to sign increasingly close agreements between insurers and distributors. It is worth refl ecting on how to build stronger bridges of cooperation and consensus building on best practices to introduce, in concert, to meet these new requirements,” he adds.

Defending Canadian practices

Mr. Gagnon believes that insurers, distributors and regulators are responsible for defending Canadian practices. Especially when they are convinced that they are better than those advocated by proponents of international standardization.

“Often, standardization is desirable and benefi cial, but when our own practices, our own standards are more effi cient, more robust, we need to protect them. Keep in mind that the Canadian fi nancial system weathered the fi nancial crisis of 2008 much better than others. That’s no coincidence,” he says. (For more on this issue, see article on pages 40 & 41)

Mr. Gagnon also underlined Quebec’s advantages in the fi nancial services world. “Our distribution networks are professional, well structured, and the envy of several jurisdictions. We are fortunate to have a regulatory authority in the province that knows our reality, that is accessible to industry actions and with whom dialogue and consensus building are possible,” he says.

“In Quebec we also have a diversifi ed, fi nancially healthy network of insurers and fi nancial product and service manufacturers. This network is made up of national, international and local companies, corporations and mutuals that have all proven their capacity to adapt effectively to new economic and social realities,” he adds.

Mr. Gagnon discussed another hazard for insurers: low interest rates. “As the situation has lasted several years already, insurers have pretty much used up their maneuvering room to limit premium increases on their products. So premiums must now be corrected upward; the trend is clearly underway. And if interest rates remain low, we must certainly expect new rounds of rate hikes on life insurance products,” he says.

Mr. Gagnon adds that some products need to be redesigned to better control associated risk. “Level cost products with long-term guarantees will probably be less attractive and even less available in the coming years. The products that you’ll be offered will be more conservative and should limit insurers’ exposure to long-term risk,” he says.

For consumers, these adjustments are excellent news, he continues. “They confi rm, in fact, that Canadian life insurers are continuing to exhibit discipline and rigour and that they’re making appropriate decisions to successfully overcome this phase of economic turbulence.”

Work ahead: social media

Social media is another area where insurers must team up, Mr. Gagnon insists. These new tools will help the industry recruit the employees it needs in the future he explains.

“Labour scarcity will stoke competition to recruit the talent we will need. This competition will not just be among us, but more than ever, other economic sectors that are also seeking to attract the best talent. We have to work together to attract and develop the succession if we want our industry to be able to continue to meet the the population’s needs,” he says.