The Financial Services Regulatory Authority of Ontario (FSRA) has published a new report, entitled Pursuing a More Innovative Ontario Insurance Sector: Barriers and Opportunities, in which the regulator summarizes feedback to recent outreach efforts regarding barriers to innovation in the sector.
The regulator’s innovation office, launched in 2020, held consultations with industry stakeholders to hear about innovation opportunities and to hear about any regulatory barriers. In the summary report, it says the regulator has made a commitment to examine how it can use its tools to better support responsible innovation. The summary report will be used to help the office inform FSRA’s approach.
They write that the most significant feedback received was that FSRA is not acting as a roadblock to innovation. The stronger message received, they add, is that the industry seeks “rules of the road” that provide clarity about how it will approach emerging technologies and business models.
Divided into two categories, one addressing auto insurance and the other commenting on life and health insurance, the report examines ways FSRA can support innovation without the help of legislative reforms.
In auto insurance specifically, the report focuses on mobility solutions, usage-based insurance (UBI) and telematics, and the use of credit information in the pricing of auto insurance.
New business models are creating opportunities for consumers to access vehicles they neither own nor lease, the report states, noting that Ontario consumers may increasingly benefit from on-demand auto insurance on a per-need or pay-as-you-go basis. The report also looks at the emerging need for subscription-based auto insurance products. “The subscription model has yet to take hold in the Ontario market: FSRA remains interested in discussions with innovators but has yet to receive a qualifying subscription model application,” they write.
They add that stakeholders did not identify any regulatory barriers to the widespread rollout of UBI products. In looking at the use of credit information in pricing, the report notes that there has not been a comprehensive analysis undertaken to determine how the use of credit information in the pricing of insurance affects different demographic groups.
The life and health discussion, meanwhile, focuses on digitalization, electronic beneficiary designations and standardization. They say insurers making use of third-party solutions retain their regulatory obligations.
“Insurers, not their third-party vendors, are accountable to FSRA for consumer outcomes,” the report states. It also examines application programming interfaces (APIs) and the possibility for the development of an open insurance API akin to the concept of open banking. “The concept of open banking and open APIs is a cross-sectoral issue for FSRA,” they write. “FSRA is continuing to engage on this and will actively explore its likely impacts across our regulated sectors, including insurance.”
The beneficiary designation discussion examines how a lack of consensus and clarity around how to make a valid electronic beneficiary designation has led to a situation currently where many are either not allowing electronic beneficiary designations or allowing them only by declaration after the contract begins. “Agents advocate for this to change, noting that a pandemic-driven shift has raised consumer expectations that they should be able to transact digitally.”
Finally, in looking at standardization opportunities, they say insurer stakeholders stated that even in cases where they would be willing to collaborate with one another, they may be constrained from doing so due to the federal Competition Act. “Stakeholders suggested that FSRA could request that Ontario’s leading insurers create standardized forms and processes,” they write, adding that FSRA could also proactively design best practices in this regard.
The report concludes in saying FSRA remains committed to open dialogue with the sector. It then asks several questions related to innovation and encourages interested stakeholders to reach out to the regulator’s innovation office.
