OSFI defends Part XIII changes to Insurance Act

The Office of the Superintendent of Financial Institutions (OSFI) is reassuring the insurance industry that its scheduled changes to Part XIII of the Insurance Act are not intended to disenfranchise a class of Canadian policyholders in favour of protecting foreign policyholders.
Philipe Sarrazin, OSFI’s director of policy and legislation, spoke at the National Insurance Conference of Canada in Ottawa-Gatineau, Que. on the changes to Part XIII.
He noted OSFI’s objective with the changes to Part XIII was to align it with the Winding Up and Restructuring Act.
In essence, the changes mean that if the Canadian branch of a foreign (re)insurer were to go bankrupt, then only policyholders where the risk is underwritten i.e. the Canadian policyholders would be eligible to make a claim against the insolvent insurer.
Previously, the location of the risk, as opposed to where the risk was underwritten, determined which policyholders could make a claim against the insolvent company.
“Who can claim a share on a Canadian policy?” Sarrazin asked, assuming the previous instance in which the location of the risk is what matters and not where the risk is underwritten. “All policyholders that are insured can. If all policyholders make claims, all policyholders knock on our door with a claim, we had better have the assets, because if we don’t [and the insurer] is diluting, Canadian policyholders’ share will be diluted. It’s a significant change, and it’s a change for the good of the policyholder.”
But (re)insurers in the standing-room-only session noted that if the risk is underwritten in a foreign location, Canadian policyholders would not be able to make a claim against that insolvent foreign branch, whereas foreign policyholders would.
“From what I can see, you are going to be taking a class of Canadian policyholders and removing them from OSFI’s protection in favour of protecting a class of policyholders in other countries,” one delegate said. “Is that correct?”
Sarrazin responded: “I guess the honest answer is yes.”
But, Sarrazin continued, it’s OSFI’s mandate to regulate an industry in favour of the protection of all policyholders.