Quebec regulator finds “conflict” in insurer/broker relations

After several months of uncertainty for Quebec’s independent brokerage community, the province’s insurance regulator, the Autorite des Marches Financiers (AMF), has issued its findings from an investigation into intermediary remuneration arrangements and market conduct. Unfortunately for the brokerage community, the AMF’s report concludes that there are inherent conflicts of interest in the current system and that insufficient independence exists between insurers and brokers.

The AMF says broker practices in the damaged insurance sector have hurt consumers due to inherent conflicts of interest. The report found that brokers are not independent of insurers, with many concentrating business on just one or two carriers (and that there are many other ties between brokers and insurers such as loans, ownership and contingent commissions which “are not in the best interest of consumers”). For example, the report notes that 90% of small brokers and 86% of large brokers accept contingent commissions, while 5% of small firms and 32% of large firms received some form of loan from an insurer. However, the report also stresses that the kinds of activities which have been alleged in the U.S. are not present in Quebec.

The AMF says it will hold discussions with the insurance industry and consumer groups before taking action. However, the regulator is considering three options:

* Banning practices “likely to inject bias into the role of brokers as advisors” (i.e. loans, block transfers of business, etc.);

* Disclosure provisions; and

* Creating a separate title of “independent broker” with stricter provisions to meet this designation.

The Canadian Association of Consumers (CAC) hailed the outcome of the AMF investigation, and describes the report as “startling”. CAC has called on financial regulators in Ontario and Alberta to follow the lead of the Quebec regulator rather than taking a “business as usual” approach to broker practices.

Quebec’s brokers have not welcomed the AMF’s report. The province’s broker association, the Regroupement des Cabinets de Courtage Assurance du Quebec (RCCAQ), says it is “perplexed” by the AMF’s report and its conclusions. The information presented is already widely known, the association says in a notice on its website, adding it does not understand the purpose in attacking the reputation of brokers. The association says it will not permit unjust treatment of its members and will continue to meet with regulators as the process moves forward. In the April 2005 issue of CU (see cover article), John Morin, president of Morin, Elliott Associates Ltee, was cautious of how the provincial regulator would react in its investigation due to the intense consolidation that Quebec’s insurance marketplace has undergone over recent years. At present, many brokers operate through “alliances” in order to meet the business volume pressures of insurers. Morin expects that the AMF’s investigation will ultimately result in regulative changes.