Best terms pricing will be banned in several provinces as of January 2023.

The New Brunswick Superintendent of Insurance, Angela Mazerolle, announced that she endorses this decision in the Insurance Bulletin issued on July 12. Mazerolle expects insurers to discontinue this practice by January 2023.

Best terms pricing (BTP) is a method of pricing a subscription insurance policy where multiple insurers cover varying portions of a particular risk. The insurers are paid uniformly based on the highest rate offered, regardless of the risk allocation, the CCIR explains. This business practice is used in commercial insurance, specifically in co-insurance subscription policies for condominiums (also called “strata”).

In December 2020, the Canadian Council of Insurance Regulators (CCIR) said it would review this underwriting practice. Regulators in British Columbia and Alberta had conducted regulatory reviews of these contracts for condominiums involving multiple insurers.

A year later, the umbrella organization for all provincial regulators indicated that this pricing practice was indeed occurring in the broader commercial insurance market. “Outcomes, including adverse premium inflation, do not support the fair treatment of customers,” CCIR said in a December 2, 2021 press release.

According to CCIR, this practice has been discontinued by some insurers and brokers, and others are in the process of doing so.

“Fair and transparent pricing is essential to a successful marketplace,” the CCIR adds, noting that its members will work collaboratively to ensure a timely transition.

AMF’s opinion  

In Quebec, the Autorité des marchés financiers published a brief dated April 14, 2022. In this “Notice to all damage (P&C) insurers authorized to carry on business in Québec regarding a pricing practice used for subscription insurance policies,” the regulator asked insurers to discontinue BTP as soon as possible. 

As of January 1, 2023, insurers must be able to demonstrate that this practice is no longer used in their activities. If they do not correct this situation, the AMF may use the enforcement measures provided for in the laws it administers in order to ensure compliance with the obligations to follow sound commercial practices.

The AMF points out that it conducted an analysis of condominium insurance in 2021, an exercise similar to that carried out by the above-mentioned provinces.