March 11, 2022 by David Gambrill
Canada’s legal community is reminding the Canadian property and casualty industry about proposed new regulatory guidance for financial incentives to buy insurance.
Among the proposed expectations of Canadian insurance regulators, it will be assumed that once insurers offer brokers financial incentives to sell certain products, post-sale controls must be in place to detect unsuitable sales arising from incentives.
It is assumed the board and executives will be involved in the design of the incentives, which would be consistent with the risk appetite of the insurers. It is also expected that measures would be in place to quantify the effect of the incentive, so that insurers and brokers can measure whether the incentives are producing results that would be unfair to consumers.
In particular, market conduct regulators are focusing their concerns on the following types of incentive arrangements, among others:
Of particular interest to brokers is that under any proposed incentive design, “the cost of the product to the customer [must] not vary based on the distribution method,” as Albana Musta of Walker Sorensen notes in an article published in Mondaq. In other words, multi-channel insurers could not offer a commission bonus to sales agents that would cause consumers to pay less for the product than if they bought that same product from an independent broker (and vice versa).
When designing the incentive, Stuart Carruthers and Andrew Cunningham of Stikeman Elliott stress “key indicators” must be established and assessed to make sure the financial incentives are aligned with the goal of treating consumers fairly.
Examples of key indicators might be:
The industry has until Apr. 4 to submit comments related to the CCIR’s Proposed Guidance.
Feature photo courtesy of iStock.com/alexsl