Insurance Regulators Issue Draft Principles of Conduct for Insurance Intermediaries
On May 25, 2021, the Canadian Insurance Services Regulatory Organizations (“CISRO”) announced that it is developing “Principles of Conduct for Intermediaries” to help ensure the fair treatment of customers in the life & health and property & casualty insurance sectors. Along with the press release, CISRO published proposed principles (the “Draft Principles”) on which it is seeking feedback from interested parties. The deadline to submit feedback is July 9, 2021.
In CISRO’s view, the Principles reflect minimum regulatory conduct standards that are common across Canada regarding the fair treatment of customers, while recognizing that each jurisdiction has its own regulatory approach for the conduct of business. In particular, any requirements, rules or standards of conduct that are more strict or specific will take priority over the Principles.
The Principles are intended to complement and supplement the Canadian Council of Insurance Regulators (“CCIR”) / CISRO Fair Treatment of Customers (FTC) Guidance (the “FTC Guidance”) and are a resource for insurance consumers to better understand the conduct they should expect from intermediaries.
In the preamble to the Draft Principles, CISRO states that the principles, once finalized, are intended to reinforce the fair treatment of customers as a core component of the insurance intermediary business culture, including conducting business in an honest and transparent manner. Expectations for the conduct of insurance business may differ depending on the nature of the relationship to the insurance customer (primarily whether it is direct or indirect), the type of insurance provided and the distribution method. Intermediaries with oversight responsibilities, such as principal brokers and equivalent, must ensure that their employees and representatives meet high standards of ethics and integrity. Consistent with the FTC Guidance, the insurer is responsible for fair treatment of customers throughout the life-cycle of the insurance product, as it is the insurer that is the ultimate risk carrier, though the insurer’s ultimate responsibility does not absolve intermediaries of their own responsibilities for which they are accountable
CISRO defines “intermediary” broadly, as this differs based on the applicable definitions within different jurisdictions across Canada. In CISRO’s view, intermediary is intended to include adjusters, individual agents, brokers and representatives as well as business entities that distribute insurance products and services, including managing general agencies and third party administrators. It also applies to all distribution methods, including distribution through the internet. These are noteworthy, given recent regulatory changes to require the regulation of managing general agencies and third party administrators in Saskatchewan and to the regulation of alternative distribution methods in Québec, and suggests that other regulators may make similar changes in their respective provinces.
CISRO defines a “customer” as the policyholder (which includes a certificate holder of a group policy) or a prospective policyholder with whom an insurer or intermediary interacts, and includes, where relevant, other beneficiaries and claimants with a legitimate interest in the policy.
The Draft Principles outline professional behaviour and conduct expectations for the fair treatment of customers. They are:
1. Compliance/Outcomes: Intermediaries must comply with all applicable laws, regulations, rules and regulatory codes to which they are subject.
2. Customers’ Interest: Intermediaries must place customers’ interests ahead of their own. This includes when an intermediary is developing, marketing, distributing and servicing products.
3. Conflicts of Interest: Intermediaries must identify, disclose and manage any actual or potential conflict of interest that is associated with a transaction or recommendation. They must avoid entering into or pursuing agreements for which conflict(s) of interests cannot be managed, or if such conflicts of interest would interfere with the fair treatment of customers.
4. Advice: When providing advice to or for a customer, intermediaries must seek complete information from the customer in order to understand and identify their unique needs. Intermediaries must provide objective, accurate and thorough advice that enables customers to make an informed decision. Advice must be suitable for the needs of the customer based on the customer’s disclosed circumstances.
5. Disclosure: Intermediaries must provide customers with objective, complete, relevant, and accurate information and explanations so that they can make informed decisions. Intermediaries must:
Properly disclose relevant information to all necessary parties; including the insurer; and
Disclose information and explanations in a manner that is clear and understandable for customers, regardless of the distribution model or medium used.
6. Product and Service Promotion: Intermediaries must ensure that products and services are promoted in a clear and fair manner. Regardless of the distribution model or medium used, intermediaries must ensure that promotions are not misleading, and are easily understandable. Product promotions must disclose all necessary and appropriate information.
7. Claims, Complaints Handling, and Dispute Resolution: Intermediaries must handle or assist in the handling of claims, complaints, and disputes in a timely and fair manner.
8. Protection of Personal and Confidential Information: Intermediaries must take necessary and appropriate measures to protect personal and confidential information. They must:
Only collect information that is necessary and appropriate for the fulfillment of the service or product provided;
Use and disclose the information only for purposes and for the duration for which the customer has given consent; and
Comply with all applicable privacy legislation to appropriately manage the information.
9. Competence: Intermediaries must maintain an appropriate level of professional knowledge to ensure the fair treatment of customers. Continuing education requirements must be fulfilled and duties must match training/education. Intermediaries must not misrepresent their level of competence or conduct business beyond their level of professional knowledge and experience.
10. Oversight: Intermediaries with contractual or regulatory oversight obligations are also responsible for the conduct of any employee or third party involved in the distribution or servicing of an insurance product. Intermediaries have tools at their disposal such as policies and procedures, training and control mechanisms to ensure the fair treatment of customers is achieved in relation to their oversight obligations.
Comments on the Draft Principles are being accepted to July 9, 2021. Clients looking to discuss the Draft Principles or submit comments to CISRO about the Draft Principles are invited to contact Nancy Carroll or Hartley Lefton.