Sixty-eight responses slammed into the Canadian Council of Insurance Regulators (CCIR) offices in reply to the organization’s consulation paper on reforms needed in the industry. Most are not supportive of the CCIR’s three policy option proposals that included the elimination of performance-linked bonuses for life advisors.

Written in conjunction with the Canadian Insurance Services Regulatory Organization (CISRO), the insurance industry had until August 3 to respond to the paper entitled Relationships Between Insurers and Sales Intermediaries.

Released in early June, the paper was based on a survey of life and property & casualty (P&C) insurers that gathered information about their relationships with intermediaries. One particularly controversial proposal suggested that legislation be introduced to restrict insurers from offering performance-based benefits to advisors, such as volume bonuses applied to sales and renewals and non-monetary incentives, such as trips. It also recommended that there be enhanced transparency with respect to advisors’ financial relationships with insurers such as regular commissions, loans and ownership ties.

However, most responses to these proposals from industry stakeholders echoed the same views: that there is no need for reform in Canada.

Following on the heels of the investigations by New York State attorney general Eliot Spitzer, the CCIR’s report was written as a means to prevent any U.S. fraudulent-type situations here. But the report presented no evidence of any similar illegal activities related to compensation practices in Canada’s insurance industry, unlike that which Mr. Spitzer exposed in the United States.

Seasoned advisor, Jim Bullock’s letter to the CCIR stated, “No evidence of any illegal insurance related activity was found. That suggests there is no problem begging for a nation-wide solution. ‘If it ain’t broke – don’t fix it.’ Instead, we are presented three options for regulatory change. Logic suggests that the first option should have been ‘Do nothing.’”

An independent advisor since 1990, Susan St. Amand of Sirius Financial Services wrote, “I understand the regulators rationale for the Canadian insurance industry to review and examine the recent alleged fraudulent and dishonest practices in the U.S., to see if they were occurring in Canada and to be proactive in identifying options to enhance public confidence. There is no evidence to suggest that consumer confidence is weak in the Canadian marketplace or that consumers are being negatively affected by the manner in which they are currently being served. A competitive industry is what drives consumer decisions in today’s marketplace, and the Canadian Life and Health insurance industry is highly competitive.”

Insurers also made their opinions known to the regulators. The Co-operators Life Insurance Company indicated that the CCIR’s recommendations are unwarranted. “It is our suggestion that the proposed options presented in the consultation paper may be unnecessary or premature,” it wrote.

Commenting on another policy option in the CCIR report, Claude Dussault, president and CEO of P&C insurer ING Canada, remarked that the current regulatory model already ensures that clients’ interests take priority over the insurance brokers’ interests. “The policy objectives pursued by the CCIR have already been integrated in the current framework in which brokerages operate,” he stated.

Life insurer, Great-West Life, agreed that consumers are already being served with the utmost professionalism. “The present, long-standing methods, with their largely commission-based compensation and incentive structure, have supported a system that offers consumers, and brings to their attention, a wide range of insurance products, related advice and on-going service. This has been done with competence, professionalism, and integrity.”

Meanwhile, the General Insurance Council of Saskatchewan indicated that in the past 10 years, it had only received one consumer complaint attributed to an issue of intermediary compensation. It wrote, “Council finds the options in the CCIR consultation paper are largely based on a perception of problems rather then substantiated findings that require remedial attention.”

Only a handful of associations such as The Investment Dealer’s Association, supported the paper. It responded, “We support the paper’s overall direction – the development of controls to ensure a level playing field for intermediaries while protecting consumers and providing fairness, integrity and access to products in the insurance marketplace. “

Others such as Quebec’s self-regulatory body, the Chambre de la sécurité financière, decided to remain more neutral in its submission. “The Chambre is joining CISRO (and the CCIR) in its analysis process related to business practices in the insurance industry and is suggesting policies aimed at minimizing the risk of actual or potential conflicts of interest. In fact, the Chambre already has a code of ethics. It stipulates that a representative must, in the practice of his profession, always remain independent and avoid any conflict of interest.”

Overwhelming response

In an interview with The Insurance Journal, Jim Bullock, an advisor with over 30-years experience, explains that the 68 responses to the consultation paper is, “huge.”

However, he says, it is disappointing that only a few advisors sent submissions. The great majority were submitted by insurance companies and organizations. “It is surprising that the group of people who will be impacted the most are complacent,” Mr. Bullock remarks.

But he does not necessarily lay all the blame on the advisors. He says that there may have been a lack of awareness about the paper.

“The CCIR has come up with the idea but they haven’t been proactive in soliciting the feedback,” he highlights. The regulators should have e-mailed advisors, requesting their thoughts, Mr. Bullock says.

“So one wonders, in how good of faith did the CCIR act? Advisors are the ones who would have a pretty good idea of what the impact might be,” he states.

Steve Howard, president and CEO of the advisor association Advocis, agrees that 68 submissions is certainly a big response. He told The Insurance Journal, “There is a strong response just because of the fact that the CCIR are pushing ahead with it when in fact they realize there is no wrong doing. When I talked to our members, they felt troubled by that.”

Unlike Mr. Bullock, he feels that advisors were well informed about the paper. “Certainly our 14,000 members were aware because we kept pumping the issue out. So the advisor group is well represented in the submissions.”

As to why the CCIR might carry on with the proposals if the majority of submissions are against it, Mr. Howard says, “That’s the $64,000 dollar question.”

“There are technical arguments, but there is also an emotional argument of why they would push ahead with it. I hope that the regulators respect the process. There is an overwhelming similar response and it would be very challenging if regulators chose to disregard this. None of the data shows it is necessary and there is no rationale for the recommendations being applied,” he adds.

The Insurance Journal contacted the CCIR to find out the next steps it plans to take, but at press time the organization was unavailable for comment.

Negative repercussions

Jim Bullock says he is especially worried about the social impact that terminating advisor incentives could have if it results in fewer people being sold insurance.

“The CCIR has said that it didn’t find anything wrong, but it will make a change. But is it a change to make things better or worse?” he wonders. If the changes have the impact of reducing the number of sales that advisors make, and if conventions used to motivate people are eliminated because they are considered performance-linked incentives, then these would not be positive changes for the industry, states Mr. Bullock.

He adds, “If sales decrease by 5% it means people are dying and do not have as much life insurance as they should. This is a huge social cost! The job of insurance agents is to educate the public to buy more protection. Society has an increased burden if they don’t.”

All submissions can be viewed at:

Highlights of the CCIR report

Here are some of the key statements found in the report by the CCIR and CISRO’s Industry Practices Review Committee (IPRC). The regulators raised several controversial issues that have sparked much debate in the industry.

- “The IPRC suggests that similar standards be applied to both the P&C and life and health insurance sectors, unless there are obvious and compelling reasons to establish separate standards.”

- “Do consumers need to understand how an intermediary is paid for his/her services (e.g. contingent commissions and bonuses) and how much in financial terms the intermediary earns from the sale of a policy to a consumer? Is it relevant information for the consumer?”

- “If the business practices in the marketplace provide incentives that have the potential to encourage biased advice, consumer confidence may be undermined.”

- “The committee also recommends to ‘codify a requirement in legislation or regulation that the client’s interest be placed above those of the intermediary or third parties.’”