November 14, 2004 by Canadian Underwriter
In a press conference today, Ontario’s p&c insurers and brokers announced a new system to ensure better communication and disclosure to consumers about commissions and other practices, while maintaining the practice of contingent commissions.
In response to the investigation of broker compensation in the U.S. and calls for review of compensation here in Canada, the Insurance Bureau of Canada (IBC) has released a “code of consumer rights and responsibilities” and an industry commitment to consumer disclosure via the Internet, while the Insurance Brokers Association of Ontario (IBAO) has devised a new point-of-sale disclosure protocol.
The first prong of the plan involves a code which will be distributed to all policyholders starting January 1, through new policies or renewals, explains Mark Yakabuski, Ontario region vice president for the IBC. “This code clarifies and brings together the rights of consumers rights that have been in place in insurance contracts and insurance law for decades.” He adds that along with the rights of full disclosure, fair treatment, complaint resolution and privacy, consumers also have responsibilities to provide accurate and complete information to insurers, to ask questions about their insurance coverage and to participate fairly in dispute resolution.
The second step means insurers will have on their websites information about the commissions they pay to intermediaries, and other financial ties to brokers this could include whether a salary is paid, a range of basic commissions and a range of contingent commissions, as well as whether the insurer has any stake in the brokerage either through a form of ownership or the provisions of loans or credit facilities.
And the last step involves insurance brokers providing their clients with a document outlining the commissions they receive and any financial links they have with insurers.
While these initiatives are taking place first in Ontario, the country’s largest insurance market, they are expected to spread across the country.
Yakabuski stresses that while the industry wants to respond to consumer concerns, the accusations laid against the industry in the U.S. do not apply here in Canada. “There is nothing hidden in how insurance companies compensate those who sell their products. There is no such thing as hidden commissions. Insurance companies have always volunteered this information and reported it to insurance regulators, the role of whom is to protect consumers.”
In face, Canadian insurers reported $290 million in contingent commissions to the federal insurance regulator last year.
IBAO CEO Bob Carter adds that contingent commissions are not a negative force as has been alleged by certain special interest groups. “It should be noted that contingent commissions which we’ve been hearing so much about in recent weeks are based on a broker’s entire book of business, not individual policies. This means two things: they do not influence how a broker handles any particular client; and a broker’s chance of receiving these profit sharing commissions can be entirely washed away by a couple big losses. This is much more restrictive than traditional sales-driven commissions.”