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Canadian regulators hint at “harmonizing” disclosure practices (November 16, 2005)


November 16, 2005   by Canadian Underwriter


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Insurance industry association codes that outline best practices for disclosing income and potential conflicts of interest may not go far enough, as suggested in a November 2005 report by the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO).
The much-anticipated report by the regulators’ Industry Practices Review Committee (IPRC) contains no recommendations. Nevertheless, it does hint at possible future directions by Canadian regulators after several months of consultation with the industry on transparency and disclosure issues.
The Canadian insurance industry regulators undertook their review in light of ongoing US investigations into contingent commissions between insurers and brokers. In several key areas, the IPRC hints at the need for greater “harmonization” across Canada in tackling issues related to transparency and disclosure.
“Regulators and [the insurance] industry have taken steps to address consumer confidence by managing potential conflicts of interest,” the IPCR notes in its online report entitled ‘Summary of Responses on The Consultation Paper on Relationships Between Insurers and Sales Intermediaries Achieving Best Practices.’
“Since Fall 2004, both the P & C [property and casualty] and L & H [life and health] industries have introduced additional voluntary measures [and] some regulatory requirements and industry codes governing conflicts of interest already exist across Canada,” the report notes. “However, regulatory requirements and industry association codes are not uniform across the country. At a minimum, there is an opportunity to further harmonize the best practices across Canada.”
The report also challenges the insurance industry to demonstrate why regulation enforcing the primacy of a client’s interests would not be effective. “Given the range of duties currently imposed [on brokers and insurance agents] by common law, council by-laws or regulations requiring the priority of the client’s interest, the IPRC would like to better understand why some respondents believe formalizing such a requirement on a harmonized basis would increase their costs or why they feel it would be difficult to enforce.”
On the question of whether current disclosure regimes are adequate, the IPRC says it will “explore further” the role of “documented product suitability recommendations by the agent or broker to address the client’s needs,” as well as the need for agents or brokers to “outline the extent of [their] market search.”
“If consumers are given the opportunity to understand the extent of market searches done by the intermediary, they can decide if further search (for example, for a more competitive price) is required,” the report concludes. “The IPRC would welcome views on potential implications of disclosing market searches for a competitive and efficient insurance market in the long term.”


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