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B.C. to prohibit referral fees for strata insurance placement


July 6, 2020   by Greg Meckbach


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Brokers placing strata corporation insurance in British Columbia could soon lose their licences and pay thousands in fines if they are found to be paying referral fees to strata property managers.

Under a proposed new law, the provincial government is “taking action to end referral fees paid to property managers,” Municipal Affairs and Housing Minister Selina Robinson told the legislative assembly when she tabled Bill 14.

Bill 14 does not target a broker’s earned commissions, but it does go after any sort of referral fee paid to people who are not licenced to sell insurance. The proposed changes to the Financial Institutions Act will prevent insurers from paying a referral fee to strata property managers or other third parties, a government spokesperson told Canadian Underwriter last week.

“Some strata managers arrange insurance on behalf of the strata corporation, and some strata managers collect a referral fee for strata property insurance sales,” the government spokesperson said. “The referral fee comes out of the commission an insurance broker makes.”

The availability of strata and condominium insurance is a national issue, with strata insurance premiums rising by an average of at least 30%, depending on the source. Some brokers have told Canadian Underwriter this is a line that tended to be under-priced for years and insurers have decided they can no longer lose money on it.

In B.C., the over-arching aim of Bill 14 is to lower the cost of strata insurance in B.C. Among the changes proposed, the province is calling for new protection for unit owners against large lawsuits from strata corporations in cases where the unit owner was legally responsible for a loss or damage through no fault of their own. It also proposes guidelines to require strata corporations to inform owners about any changes to their insurance coverage and provide notice of any policy changes, including any increases in deductibles.

One reason the government proposes a prohibition on referral fees is to give strata councils more confidence that their choice of broker has not been influenced by the potential for the strata manager to benefit financially, the government spokesperson said Friday.

Brokers who fail to comply may face suspension or revocation of their license, along with an administrative penalty of up to $25,000 for an individual and up to $50,000 for a corporation.

So basically, there will be a blanket prohibition on referral fees for strata insurance being paid to anyone who is not licenced to sell insurance.

Civil servants are not aware of any payments of referral fees to persons other than strata property managers.

“However, a broad, blanket prohibition on referral payments by insurers and brokers was adopted to ensure the prohibition was not avoided by payments to third party payments (e.g., payment by a broker to a related party of a property manager, such as a parent corporation),” the government spokesperson said.

If passed into law, Bill 14 would changes Section 178 (1) of the Financial Institutions Act to read as follows:

(1) An insurer, officer, agent or employee of an insurer, insurance agent or insurance salesperson must not pay or allow to be paid, or offer or promise, a commission or compensation to a person who is not an insurance agent licensee or insurance salesperson licensee

(a) for acting as an insurance agent or insurance salesperson in British Columbia,

(b) for referring business in relation to the insurance of a strata corporation within the meaning of the Strata Property Act, or

(c) for any other prescribed purposes.

As it stands, the law currently reads as follows:

An insurer, officer, agent or employee of an insurer, insurance agent or insurance salesperson must not

(a) pay or allow to be paid, or

(b) offer or promise

a commission or compensation to a person who is not an insurance agent licensee, or insurance salesperson licensee for acting as an insurance agent or insurance salesperson in British Columbia.

(2) An insurance agent licensee may pay a fee or a portion of a commission to another insurance agent licensee in respect of business referred to that licensee.

(3) Despite subsection (1), an insurer, officer, agent or employee of an insurer, insurance agent or insurance salesperson may

(a) pay or allow to be paid, or

(b) offer or promise

a commission or compensation to a person or class of persons prescribed by regulation.


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1 Comment » for B.C. to prohibit referral fees for strata insurance placement
  1. Frank Cain says:

    See “Registered Insurance Brokers of Ontario – Code of Conduct Handbook” – Ontario Regulation 991 – Section 15 (1), paragraph 12.

    Similar misconduct dealt with.

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