Proposed law requires minimum number of broker quotations

The Regroupement des cabinets de courtage d’assurance du Québec (RCCAQ), a Quebec broker association, is concerned about a proposed change to provincial law that would require brokerages to quote a minimum of four markets on any insurance proposal.

Quebec introduced the amendment to clarify Article 38 of the so-called “20% rule,” which bans a financial institution from holding more than 20% of the voting shares or more than 50% of the participating non-voting shares issued by a given insurance brokerage firm.

The purpose of the 20% rule is to maintain the brokerage’s independence. The Quebec government introduced Bill 150 in late October 2017 to clarify the application of the rule.

In clarifying the scope of brokerage activities, the new bill spells out the difference between a “brokerage” and an “agency.” To register as a damage insurance brokerage firm, Bill 150, which has not yet been adopted, requires the brokerage to offer their clients products from “at least four (4) different insurers who do not belong to the same financial group.”

RCCAQ would drop the requirement from four down to two.

“Although the government’s desire to clarify the definition of brokerage activities is laudable, the RCCAQ has reservations about the measures put forward to reach that goal,” the association told Canadian Underwriter.

Related: Aviva Canada urges Quebec government to maintain 20% ownership limit of brokerages by insurers

“Establishing a minimum of four insurers’ quotes for each client proposal and setting a participation limit of 20% in a brokerage firm’s decision making or equity structure are measures that are difficult to carry out.”

Instead, the RCCAQ recommends that “each firm have contracts signed with at least two different insurance companies at all times (personal as well as commercial insurance).”

Also, the RCCAQ believes that “setting limits on ownership rights raises the question, first and foremost, of the influence that insurers might be able to exert over some firms.”

Instead, the association recommends, this question should be addressed by focusing on brokerage firm independence. “In this regard, above and beyond an ownership percentage, the RCCAQ recommends implementing independence tests enabling brokerages to maintain control over their business operations.”