Broker or insurer: Who’s responsible for letters of non-renewal on auto policies?

The issue of how much responsibility an Ontario broker has for sending out non-renewal notices to auto insurance clients is in the spotlight, featuring an online discussion focused on adequate notice time and the possibility of errors and omissions (E&O) implications on the broker.

In a LinkedIn post earlier this month, Hugh Fardy, a broker E&O specialist and senior vice president of professional liability for Gallagher’s Ontario region, said he was advised by several brokers that insurers have “told” them they are now responsible for sending registered letters of non-renewal on automobile policies.

“Few brokers seem to be aware of the actual conditions in the Insurance Act and some have taken to trying to do as they have been ‘told,’ and, in some cases, [put] themselves in [a] risky position,” Fardy writes in the LinkedIn post.

Under Section 236 of Ontario’s Insurance Act, an insurer choosing not to renew a contract is obligated to provide 30 days notice to the consumer or provide 45 days notice to the broker, says Russ Courtney, senior media relations and digital officer with the Financial Services Regulatory Authority of Ontario (FSRA). Brokers must then provide consumers with 30 days notice that their policy is not being renewed, unless the broker finds the driver a new policy with very similar terms and coverage.

“Insurers can notify consumers directly or may choose to notify the broker,” Courtney says. “Regardless of the party delivering the notification, it’s crucial consumers are told in advance that their auto policy is not being renewed.”

iStock.com/Mohamad Faizal Bin Ramli

Fardy notes the responsibility for non-renewal letters is “primarily the responsibility of the insurer who participates in the policy and who made the decision.

“Brokers should never just accept that kind of thing and should always look closer at the situation,” Fardy writes. “I would not want to make it appear I am taking on someone else’s duty to provide 30 days notice of non-renewal if perhaps I don’t get sufficient notice to do so.

“However, like most rules there are exceptions in the Insurance Act and in this case one such is that an insurer may provide 45 days notice to the broker who then must provide the 30 days written notice to their client,” Fardy writes. “Another deals with notice requirements if a renewal has been arranged.”

Brokers need to ensure they have a full understanding of the act, plan procedures to do as required, but also protect themselves, Fardy writes. This could even involve discussing “with our peer group to help guide us in making informed decisions on our actions.”

One broker said in the LinkedIn their office is now “VERY carefully reviewing these notices. What we get 45+ days notice on, we handle per the Insurance Act. What we get 44 or less days on, we respond to the insurer, ‘As you have not complied with the conditions laid out in the Act, please be advised that while we will make best efforts to provide notification, it remains your responsibility to send a registered letter to the insured.’”

Email notification is allowed, the broker reports, but his office is still trying to determine if a client must opt in to email as notification or if it’s standard.

Another broker said they believe “this is a big issue in the insurance world right now,” with “too many uneducated and inexperienced people put in positions making decisions that go against insurance laws… Not enough people discussing all of the aspects of some risks.”

One broker commented that an insurer was even requiring them “to sign a document acknowledging the non-renewal.”

Canadian Underwriter reached out to the self-regulatory body for Ontario brokers, the Registered Insurance Brokers of Ontario (RIBO), to see if they’ve had any complaints about registered letters of non-renewal on auto policies. “We have checked and determined that we have not received any complaints about this issue,” a RIBO spokeswoman says.

Another broker said in the LinkedIn thread that this is a situation “where it doesn’t hurt to be proactive, lean on your peers, and utilize your BMS (alerts and templates). Anticipating a pivot will help if a shift or share in responsibility happens.”

Yet another broker suggests the practice could be a transfer of cost to the brokerage and opens the firm up to E&O liability.

“Our office will send a registered letter of non-renewal. That may be overkill but it does get the insured’s attention and immediate response,” the broker writes. “However, I think as soon as we take on that role to advise of non-renewal we own it, hence it becomes our liability issue. I wonder how our E&O providers would view this.”

Feature image by iStock.com/Pattanaphong Khuankaew