Canada has several insurance regulators across the country. Some are meticulous about regulatory compliance, while others expect adherence to basic operating principles. Regardless of their approach, one thing is clear: they demand increased oversight of financial security advisors.
This was the strong opinion expressed by regulators during a panel at the Canadian Association of Independent Life Brokerage Agencies (CAILBA) conference. The event took place in June in Whistler, British Columbia.
“I think every province is really looking at supervision, benefits, in a teaching manner, but also in a way to understand what’s actually happening out in the industry today,” said panel moderator, Nina Kavalinas, vice president and national director of compliance and investigations with Financial Horizons.
Of those represented, Saskatchewan would appear to stand out. In that province, rules changed in 2020 mandating that agents be supervised until they sell 50 in-force policies. Under previous rules, the supervisory period for a new agent was two years. This was changed because the regulator, through a super audit of those who’d passed their two-year probationary period, found the majority of people who had supervision audits conducted, sold fewer than three policies during that time.
“Some of them had been licensed for two or more years and had never sold a policy, not even to themselves,” April Stadnek, executive director of the Insurance Councils of Saskatchewan states. “We felt that was an area that needed some further work. Individuals new to the industry should not be allowed out there on their own without actually understanding how policies work and how to sell that policy.”
Today, she says the regulator does supervision audits regularly. “People come to us and request to be removed from supervision – they send us all of their policies and information,” Stadnek adds. The information required includes know-your-client type of information, whether the policies were replacement policies and if an assessment was done prior to selling the policy.
For those who are already licensed in another province, she says the regulator will not require the same degree of detail, but they will require the information about policies sold from the managing general agency (MGA) or insurers directly. “We want to make sure that the organizations that are supervising these individuals are (also) aware of what’s going on,” she adds.
The province also has an exemption for those who are registered but not actually selling policies – these licenses can be issued with conditions stating that the license is only good for the position in question. Should the agent move to another role or company, they may be required to go back on supervision.
Later, Stadnek puts figures to the problem of licensed agents who may not be conducting quality business or any business at all. “We’ve got people who are, in three years, selling 300 policies but don’t even have 150 policies retained. What business is being done here?” she asks, adding that the problem of agents selling policies to clients with lapsed or surrendered policies continues – many times with the agents going back to the same insurers. “Somebody should have picked up on this by now,” she adds.
Errors and omissions (E&O) insurance is another area where the regulator conducts audits. She says most are not aware of the rule that agents must notify the regulator if this coverage for their practice lapses. “If you don’t, we’re going to sanction you. We tend to find that people don’t take E&O nearly as seriously as they should. I know we all think we do really good business, but we’re all human and we all make mistakes. We have to make sure we have E&O in place to protect the consumer.”
British Columbia’s representative, Janet Sinclair, CEO of the Insurance Council of British Columbia added further colour to the discussion: Only 42 per cent of agents audited in the province were in compliance with their E&O requirements. “Not that people didn’t have E&O insurance, but the policies didn’t actually meet the requirements,” Sinclair says. Initiatives underway there to address the issue include work with the agencies selling E&O insurance and education and awareness work among agents to increase compliance.
British Columbia similarly has other figures, as well, which have the regulator looking at the education of agents in the province. This includes the fact that only 18 per cent of licensees there have more than five years of experience while 41 per cent have sold between zero and five policies. “We’re dealing with a new crowd,” she adds. “They need that supervision and guidance.” In addition to the 41 per cent who lacked business, 42 per cent had sold replacement contracts and 41 per cent were not familiar with their obligation to report suspicious transactions or unknown sources of funds.
What was especially notable, however, is the fact that 65 per cent of supervisors surveyed by the regulator didn’t know who they were supervising. “There’s obviously some work we need to do in this space,” she says.
What is also notable, Sinclair adds, is the number of cases the regulator has underway where clients have complained because they can’t afford their coverage. “We’re seeing individuals with low, very low annual incomes and they’re buying policies where the premiums are thousands of dollars a year. How are they paying those payments? How are these things getting through the MGA? How are they getting through the insurer?” Sinclair says these questions are what the regulator is becoming increasingly curious about. “In British Columbia we have a government that is very interested in unknown sources of funds,” she says. “As an agency of the government, their expectation is that we would be paying attention to that, as well.”
On the positive side, she also notes a 77 per cent increase in the number of agents and companies accessing the province’s regulatory inquiries line. “We’ve been able to support a better outcome,” she says. Audits, meanwhile, are intended to be teaching tools, not an effort to push licensees into investigations. “If we’re pushing you into misconduct, we’ve found something really egregious.”
Some surprised licensees push back
Interesting among the regulators is the observation that licensees are often surprised to find they are subject to regulation in the first place.
In New Brunswick, for example, the regulator has recently begun licensing restricted insurance representatives – a challenge, Angela Mazerolle, vice president of regulatory operations and superintendent of pension and insurance at the Financial and Consumer Services Commission (FCNB) says, as many were not accustomed to having regulatory oversight. “Our first number of site visits to the auto dealers were interesting ones. They didn’t necessarily like having an insurance regulator show up at their door.”
Stadnek, meanwhile, observes that many being asked to provide proof of their processes when being evaluated for supervision and other matters, will push back saying the information is private. “If you don’t want to give it to us, that’s absolutely fine. You’ll stay on supervision,” she says. “If we require it for any other purpose, you could get sanctioned for failing to respond to the council.”
She adds that some insurers have also protested, saying many agents will never get off of supervision with the 50 in-force policy requirement. “That’s probably not a bad thing. If they haven’t sold that many policies, they probably shouldn’t be off of supervision.”
Recommendations
Although Joseph Fernandez, registrar with Alberta Insurance Council, says in general the regulator is finding that agencies have a good attitude about being regulated, there remain deficiencies related to policies and procedures and complaints handling.
Regarding how agents are made aware of policies and procedures, he says quite often new agents are given a stack of documents to sign – a good practice, he says, but many aren’t reading the documents. “My recommendation: If you have policies and procedures, make sure you have processes to make sure that individual agents understand them.” These, he says, could be brought up over a period of six months in regular meetings. “It does not matter how much effort you put into policies and procedures. If the agents do not see them, your agency’s efforts are not going to be successful.”
He also advocates for agencies to investigate circumstances with a retrospective approach, to better understand problems. Unlicensed staff, for instance, could be used to ensure that there is adequate documentation in client files. “I encourage you to basically see issues that end up being problematic and take a retrospective approach,” he adds, not to find fault, but to come up with recommendations and processes to prevent the same events from occurring again in the future.
Finally, Sinclair recommends reframing how compliance and regulation is approached and discussed. “Often you’ll hear about the regulatory burden – it’s always regulatory, followed by burden. And so, from the perspective of a new agent, their regulatory requirements are going to be a burden,” she says. “I was at a conference a while ago and somebody said that compliance and commitment drive different results. Compliance and commitment drive different results,” she repeated. “If that’s the case, as MGAs and people who are senior in this profession, looking to guide people forward, if you come to the regulatory piece as a commitment to do a better job for clients, I think you’re going to get different results.”
