New Privacy Act could put an end to the broker black list

By Nawfal Sheikh | September 20 2010 03:36PM

The Personal Information Protection and Electronic Documents Act (PIPEDA), a new federal privacy law slated for nationwide implementation on January 1, 2004 will make it more challenging for agent-screening companies to pinpoint brokers who owe money to managing general agents (MGAs) without the broker’s consent. This could spell the end of the valued “broker black list.”

“The issue is that we receive some information that’s given to us that we really shouldn’t [have],” says Ian Robinson, President of Greengrass Group. Greengrass is a company that, in addition to its financial inspection and paramedical services, maintains a list of errant brokers for its agent screening services.

“For example, an MGA that a broker owes money to could simply call and let us know of an outstanding debt even though it does not have a consent form to do so,” explains Mr. Robinson. Organizations that provide such personal data, namely MGAs, could also be liable to PIPEDA.

Commission charge-backs on cancelled policies in their first year are a primary reason for broker debt. MGAs are ultimately responsible for any debt incurred by a broker and must pay it back to an insurer. This leaves them in a financially precarious position and, at times, according to Mr. Robinson, willing to provide personal information without broker consent.

This process contravenes the consent principle of the Canadian Standards Association (CSA) Model Code for the Protection of Information developed in 1996. As Canada’s national privacy code, its ten principles are voluntary. Consent is the third principle and states: “The knowledge of and consent of the individual are required for the collection, use, or disclosure of personal information, except where inappropriate.”

In this case, the individual is the broker and both the MGA and Greengrass act as organizations collecting, using or disclosing personal information. “Except where inappropriate” refers to section seven of the Code listing exemptions when consent is not needed, like an emergency situation, says Fazila Nurani, Senior Privacy Advisor at PrivaTech Consulting out of Thornhill, Ontario. However, none of the exclusions apply to the given scenario, she adds.

Incoming legislation

Organizations do not have to comply with any of the CSA values since it is voluntary, but many do in order to demonstrate their business excellence, performance and security. A standard only becomes law if legislated by government.

Key elements of the CSA Model Code, including consent, are now incorporated in the PIPEDA. The act is applicable to every organization, which collects, uses or discloses personal information in the course of a commercial activity. Organizations operating in a province that have ratified analogous legislation are exempt.

Quebec is the only province to have its own personal data protection law, which has been in place since 1994. Therefore, if a Quebec MGA discloses a broker’s personal information without consent to a third party, “the Quebec MGA would be liable,” says Ms. Nurani. British Columbia and Alberta are also expected to have their own acts in place before the federal deadline. However, neither Greengrass nor MGAs outside of Quebec are currently breaking the law since PIPEDA does not apply to them until 2004.

Once in play, PIPEDA will affect the personal information an organization has previously amassed.

Consequently, if organizations possess such data, they must not use or disclose it unless it has been collected with the brokers consent.

This means that Greengrass will now have to get approval prior to using or disclosing some of its personal information. This is one of two lesser methods the Hamilton, Ontario-based company employs when gathering information on brokers and screening them. It usually follows proper CSA consent guidelines, obtaining written approval first.

If a broker feels their privacy has been invaded without sanction, it is up to them to take the necessary steps to file a grievance. Firstly, a complaint to the privacy commissioner is made. The commissioner would be obligated to investigate. It’s “a complaints driven legislation,” continues Ms. Nurani, it does not go straight to the courts.

If the complaint is believed to be well founded and not malicious, then “a report of recommendations or findings against the MGA or the background check company (Greengrass),” is released, Ms. Nurani adds. This is because the commissioner lacks the authority to give orders.

“But if the company just ignores that record of recommendations and does not make any changes to their practices, the commissioner or the complainant (broker) could take the company to federal court,” she adds. “And at that level, the complainant can seek damages for basically anything... There’s no limit.”

Typically, MGAs require brokers to go through a background check before being taken on. This is one of the services Greengrass provides the Canadian Association of Independent Life Brokerage Agencies (CAILBA). It “maintains a debit list for CAILBA members,” says Klaus Zabel, President of CAILBA and Marketing Concepts Group.

But before the screening can begin, a consent form given by an MGA to a broker needs to be completed. The form gives an MGA the right to do a credit check on a broker, enlisting the services of a third party for verification. Greengrass provides many MGAs with that form, which was recently updated, continues Mr. Robinson.

Some MGAs do not operate with a consent form, he adds. Thus, they are probably more likely to disclose information on brokers without adhering to best business practices and come 2004, will be in violation of PIPEDA.

Highlighting the importance of consent, the new version of the form expresses in bold that “if there’s a debt and an agent refuses to pay the debt back, it can be reported to the credit bureau and or to us,” says Mr. Robinson.

Mr. Robinson says brokers should not take the changes lightly, especially the addition of the credit bureau. Not only could it affect them professionally but personally in peripheral matters over the long-term. “If you’ve got a bad debt on your credit bureau account, that affects you getting credit anywhere,” professes Mr. Robinson.

Greengrass benefits

Marketing Concepts also uses Greengrass’ services routinely, helping weed out bad brokers because of in-depth and needed background checks, continues Mr. Zabel. MGAs can and do perform background checks on their own. Problems, however, do arise when acting independently. Trying to get detailed information from insurers is one of them.

“You check with the companies. They tell you that everything is fine. What they don’t tell you is that he (the broker) has a $1,500 debit,” Mr. Zabel states. “There are lots of reasons why they might not tell you. One of which is the fact that they consider it private or that they’ve already collected the debit from the MGA.”

The latter reason seems to be true, at least for Sun Life Financial. The insurer also employs Greengrass to run background checks on all potential brokers it contracts, says Carole Cardinal, Wholesale Contracting Team Leader at the insurer. Broker debt is looked at, however, it rarely hinders the issuing of a contract because the MGA is responsible for it, adds Ms. Cardinal. If the debt was an exuberant amount and an exact dollar figure could not be given, then Sun Life may be scared off. This hardly ever happens, she emphasizes.

That means if a CAILBA member wants to contract a broker, it calls Greengrass and asks if that broker has a debt with any current CAILBA members, adds Mr. Zabel. If the answer is yes, then the name of the member MGA that is owed money is first revealed. “And then I’m required within CAILBA to not contract that person unless he takes care of that outstanding debit balance,” explains Mr. Zabel.

“The practical result has been that we actually have much fewer debits and any that we have are taken care of,” says Mr. Zabel, explaining brokers do not necessarily have to repay debt in one shot.

Mr. Zabel says that Marketing Concepts had a broker last year that had a debit that he could not payback with one cheque. “We’ll collect it back over business the broker writes over the next six, eight or nine months, or even a year. Everybody’s okay with that,” he continues. “Ten years ago the guy would have just gone to another MGA, started writing business and said, ‘Well, I’m just not going to repay it.’ [Brokers] knew it would not be reported. That happened very often and it cost a lot of people a lot of money.”

An added twist

What has many waiting with baited breath is to get a fix on the rationale and workings of the new interim Privacy Commissioner, Robert Marleau. Mr. Marleau replaced George Radwanski, who resigned amid investigations into his extravagant spending habits – all of which was allegedly footed by taxpayers. One positive attribute Mr. Radwanski displayed as commissioner was a keenness to defend people’s privacy rights, taking a hard-line against those who infringed upon them, says Ms. Nurani.

This may not be true for Mr. Marleau. “We rely on the interpretations of the commissioner and now the new commissioner could say, ‘No. I don’t agree with any of these decisions and we’re going to back track,’” exclaims Ms. Nurani. “It would be like starting from scratch if he had a totally different view point. It puts it in a grey area right now.”