March 11, 2016 by Patrick Déry, Chair, Canadian Council of Insurance Regulators, and Superintendent, Solvency, Autorité des marchés financiers
In November, the Canadian Council of Insurance Regulators (CCIR), a forum for the provincial and territorial insurance supervisory authorities from across the country, released its Framework for Co-operative Market Conduct Supervision in Canada.
MEETING INTERNATIONAL BEST PRACTICES
The performance of the approach to insurance regulation in Canada was the subject of a review conducted by the International Monetary Fund (IMF) in 2013. The review assessed the degree to which insurance regulation in Canada is aligned with international regulatory standards – insurance core principles (ICPs) – one of the sets of standards used to assess the health of the country’s financial sectors.
The ICPs place an emphasis on ensuring that consumers are treated fairly and are free from abusive business practices. In line with the principles, supervisory authorities are expected to have comprehensive regulations to address risks to consumers throughout the insurance product life cycle. As a result, the ICPs set standards for not only an insurer’s market conduct practices and fair treatment of consumers, but also establishes standards for the supervisory authorities and their approaches to regulation.
The findings of the IMF review concluded the approach adopted in Canada was largely consistent with international standards. However, the IMF recommended that provincial and territorial supervisory authorities be proactive in enhancing consistency in the network of supervisory regimes governing insurance across the country.
REGULATION FOR AN EVOLVING MARKET
The co-operative framework was developed in order to modernize existing practices and better respond to the IMF recommendations. It introduces greater consistency and a more co-ordinated approach to insurance supervision and consumer protection through increased co-operation and information-sharing among the provincial and territorial supervisory authorities.
The authorities have been collaborating and exploring issues of mutual interest for more than 100 years through the CCIR. However, similar to other aspects of modern life, the insurance marketplace is evolving and experiencing significant and rapid changes. Technology, social media, interconnectedness of financial institutions and insurance innovation have made market conduct regulation more complex than ever.
In addition, consumer understanding and expectations regarding protection and the role of supervisory authorities have also matured.
That being the case, an increased collaboration and co-operation among supervisory authorities is key in modernizing the insurance regulatory framework to keep pace, ensure consumers are being treated fairly and foster effective, proactive identification of risks.
Updating the MOU
The first priority in light of the IMF’s recommendations was to update and modernize the CCIR’s Memorandum of Understanding and Protocol on Co-operation (MOU) so that regulators across the country could communicate and share information more effectively. The number of signatories for the new MOU currently stands at 10, and the remaining three jurisdictions are in the process of getting approval to join.
The MOU will ensure supervisory authorities can more easily and effectively co-operate and share information on market conduct of regulated entities across Canada, which is also expected to benefit the industry and consumers.
It is anticipated increased information-sharing will work to limit the potential for duplicative regulatory action across provinces and territories, as well as provide supervisory authorities with a broader and more comprehensive understanding of practices and conditions in the country’s insurance market.
Developing the co-operative framework
The development of the co-operative framework was the second priority for CCIR. It builds on the foundation established through the MOU, detailing how supervisory authorities will work more closely together. Effectively, the framework codifies a co-operative approach that bolsters partnerships among the provincial and territorial authorities and establishes a supervisory model that is akin to a regulatory college.
The framework clarifies how CCIR members will work together on market conduct issues across provinces and territories. It describes the kind of information that members will share with one another and how that information will be used by the regulators and CCIR collectively.
Fundamentally, the co-operative framework is a direct response to the IMF’s call for supervisory authorities to be proactive in enhancing consistency. It identifies the types of information to be shared and partnered activities in which supervisory authorities will engage to bring about greater regulatory consistency across provinces and territories.
Supervisory authorities will now share responsibilities and leverage their resources in regulating the insurance markets by identifying common regulatory concerns and developing co-operative supervisory plans to address those concerns. Partnerships and project teams will be established across provinces and territories so that multiple jurisdictions can engage in co-ordinated supervisory activities, including insurer-specific reviews, thematic reviews and reviews of systemic risks.
For example, when two or more provinces are interested in investigating the same insurer or market issue, they will co-ordinate and conduct a single investigation, and then share the results with other MOU signatories, thereby minimizing the chance of duplicative reviews being undertaken.
For the industry, that co-ordination and co-operation means responding to one request for information, investigation or review from supervisory authorities instead of upwards of 13.
The increased information-sharing outlined in the co-operative framework also paves the way for provincial and territorial supervisory authorities to work more closely on collecting and analyzing data, which should result in a more comprehensive approach to market analysis. Regulators will now have access to not only more data and resources for assessment, but also a deeper, national context regarding the practices and trends within their own jurisdictions.
The increased information-sharing and co-operative supervision of the insurance market is expected to provide for more effective regulation, improved use of regulatory resources, better identification of market conduct risks and more proactive regulatory responses, as well as similar levels of consumer protection across provinces and territories.
With most of the provincial and territorial supervisory authorities being MOU signatories and agreeing to the co-operative framework, efforts are under way to ensure the new co-operative and co-ordinated approach to insurance regulation is implemented starting this year.
Supervisory priorities for the next year are currently being assessed to identify commonalities among the provincial and territorial supervisory authorities. Common priorities will be used to develop co-ordinated plans of action and provide the basis for co-operative supervisory activities in the coming year.
The CCIR is also working to develop a harmonized annual information return for insurers across the country. Consultations with industry representatives regarding the content and delivery of the harmonized form – meant to reduce duplication and eliminate the need for insurers to provide similar or identical information to multiple supervisory authorities – began in late 2015. The information collected will provide CCIR members with the information needed to monitor market conduct practices.
The CCIR and its members have a long-term commitment to the fair treatment of consumers and ensuring consumer protection remains the focus. The CCIR will maintain its open dialogue with industry stakeholders as its work to redefine the approach to co-operative market conduct supervision continues.