Demystifying group business

One area of great confusion that exists in the insurance market in Canada today is the status of group property and casualty coverage. The advantage of group coverage is that it can be sold without a licensed broker being involved. As an increasing number of property and casualty insurance coverages are mass marketed or sold on a direct basis, this issue becomes more important. Compounding the uncertainty are the different positions taken by various provincial insurance regulators. B.C. has imposed a prohibition on group property and casualty insurance coverages. Other provinces such as Ontario have taken a more neutral approach that appears to permit the existence of group property and casualty coverages under certain circumstances.

The starting point for assessing the validity of group property and casualty insurance is the applicable insurance legislation in each province. The Insurance Act (Ontario) is representative of the legislation in most provinces and explicitly recognizes group insurance for both life and accident and sickness insurance. However, the Act is silent with respect to group property and casualty insurance. It can be argued that the lack of a reference to group property and casualty insurance means that it is not permitted. It can also be argued that the lack of a specific prohibition in the Act on group property and casualty insurance means that it can be done and should be considered a contractual matter between the insurance company and the policyholder. It is clear that auto insurance can only be offered on an individual basis since the Act provides for the form of individual policy that must be used.

B.C. position

B.C. has taken the position that the lack of a specific reference to group property and casualty insurance in the legislation means that it is not permitted. As a result, all property and casualty insurance must be sold by a licensed broker. B.C. has taken an administrative position that makes it extremely difficult for any type group or mass marketed property and casualty insurance to be offered in that province.

Part of the problem in understanding group property and casualty insurance is that it covers a number of different types of arrangements. A typical group life insurance policy involves a group policyholder such as an employer and certificate holders who are insured under the policy. True group policy structures are rarely found with respect to property and casualty insurance. One of the problems with arguing that group property and casualty insurance can exist is the lack of an insurable interest in many cases by the person who would be the group policyholder. Affiliations or organizations that are involved in the mass marketing of coverages are really acting as a sponsor rather than a group policyholder. More common are affinity programs which involve the issue of individual policies, subject to sponsorship and an administration agreement. Another example used are blanket policies that are really an individual policy issued to an association that implicitly covers all the members. A master policy with additional named insureds added on is another approach to group property and casualty insurance.

“Group” sponsors

It is now common for various personal lines coverages, including automobile and homeowners, to be offered on a mass marketed basis by a sponsor such as a department store or financial institution. These programs involve the use of individual policies, subject to an overall sponsorship agreement. The sponsor does not actually sell the coverage, but rather endorses it. The practical difference between this and a group coverage is limited. If consumers have questions on the coverage, they are usually referred to the insurance company that is involved.

Group property and casualty insurance coverages currently exist in a number of different contexts. One of the most common are certain types of coverages such as lost luggage that are found on credit cards. It is also common for automobile clubs and service clubs to offer group property and casualty coverages such as a roadside assistance and collision deductible waivers as part of their membership benefits.

Group property and casualty insurance involves distribution issues as to whether licensed persons are necessary to be involved. In group life insurance, the group policyholder performs an enrollment role that would otherwise on an individual policy be prohibited since it would be required to be done by a licensed agent or broker. Group property and casualty coverage may be viewed as an attempt to avoid having a licensed agent or broker involved in a program.

Different covers

One approach to regulating group property and casualty coverage would be to distinguish between different types of coverages. For example, in B.C. a warranty is considered to be an insurance product. In Ontario it is not considered to be insurance. Since warranties are commonly offered on a group basis, this creates numerous problems in offering them in B.C. It may be possible to draw a distinction between certain types of coverages as warranties that are relatively easy for consumers to understand from other products such as automobile insurance, where the amounts insured are significantly higher and the coverages are more complex. There are a number of different types of coverages where it will be important for the consumer to have the advice of a licensed broker.

One of the basic principles of group insurance is that it offers consumers the opportunity of obtaining better coverage at lower rates. An absolute prohibition on group property and casualty insurance does not make sense. It should be permitted under certain circumstances where the advantages of obtaining the coverage outweigh the lack of a broker being involved. For example, a good argument can be made for allowing a credit card to offer lost luggage insurance as an incidental coverage to a travel insurance or an accident and sickness product. However, at the same time it may be argued that allowing a credit card to offer automobile insurance would deprive the consumer of the right to be fully informed by a broker with respect to the insurance product being obtained. Some property and casualty coverages can also be considered as incidental to either life or accident and sickness coverages that can be offered on a group basis. A good example of this is job loss coverage. Life insurance companies are now permitted by the Office of the Superintendent of Financial Institutions (OSFI) to offer this coverage, which is clearly a property and casualty product. It would appear to be logical that if a life insurance company can offer it, it should be able to be sold on a group basis.

Finding consensus

In order to resolve the uncertainty regarding group property and casualty coverage in Canada, it is necessary for the basic principles to be clearly understood. In addition, it will be important for there to be a consistent approach used in Canada by insurance regulators. It is now becoming common for national group property and casualty programs to exclude coverage under them for residents of B.C.

The positions taken by insurance regulators with respect to group property and casualty insurance are done using guidelines rather than by enforcing actual legislation. When the Insurance Act (Ontario) in its current form was drafted approximately 60 years ago, the concept of group property and casualty insurance did not exist. Unfortunately the Act has not been updated on a regular basis in order to reflect new products and changes in the insurance market. Group property and casualty insurance can offer useful and inexpensive coverages to consumers that might not otherwise be available to them. It is submitted that the current approach taken in B.C. of a blanket prohibition is an extreme reaction to a valid consumer issue. In addition, the lack of harmonization across Canada regarding this issue results in additional expense and uncertainty for insurance companies attempting to offer programs on a national basis.

Legislative clarity is urgently required with r
egard to the marketing of group property and casualty insurance products. Currently, the lack of legislative harmonization across the provinces is hampering the market’s growth and producing unnecessary administrative expenses. A significant issue at stake is outdated insurance legislation, which in many cases was written over half a century ago — long before the concept of group insurance was thought of.

One of the problems with arguing that group property and casualty insurance can exist is the lack of an insurable interest in many cases by the person who would be the group policyholder.