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Regulator to study incentive programs as part of “fair treatment” education mandate


November 13, 2019   by Jason Contant


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More communication is needed to inform the broker community about fair treatment of customers (FTC) guidance, since there may be a disconnect or lack of awareness of the topic, the Canadian Council of Insurance Regulators (CCIR) reported recently.

In particular, the regulator is focusing on incentive programs that brokerages or carriers may use to boost sales.

During in-person meetings held in late March this year, a working group on FTC discussed a variety of topics, including that brokers need to be more aware of FTC guidance. The joint CCIR-Canadian Insurance Services Regulatory Organizations (CISRO) working group held the meetings to “provide a safe environment where industry and regulators exchange information and views on their respective FTC-related actions, as well as clarification or interpretation of the guidance’s principles,” CCIR said in a press release last week.

Now the regulator is seeking to increase intermediary and consumer awareness regarding FTC. In particular, the FTC working group will consult with the industry to gain a better understanding of current incentive practices in the market and their alignment with FTC principles.

The working group is zeroing in on incentives management, particularly on incentives that “create an obvious conflict by their very nature,” CCIR said. Examples would be programs involving the awarding of travel or trips to top-selling intermediaries. “Regulators stated they would appreciate continued sharing of information on stakeholder initiatives being undertaken to promote and advance FTC.”

In September 2018, CCIR and CISRO jointly released the Guidance Conduct of Business and Fair Treatment of Customers guideline, documenting the common principles that regulators will use to evaluate FTC by insurers and insurance intermediaries such as brokers. Concepts in the document include ethical behaviour, acting in good faith and prohibition of abusive practices.

The working group addressed specific questions related to the guideline in its March meetings. The discussions also raised a variety of topics, including:

  • Incentive programs are different from one sector to another and need to be viewed holistically through the FTC lens
  • It can be challenging to measure objectively and demonstrate an existing, evolving and ongoing commitment to FTC
  • Adjusting incentives tied to volume of sales may have unintended consequences for smaller markets
  • Some stakeholders have formally made FTC a priority and have commenced reviews on current practices, both at the association and member levels
  • Stakeholders, collectively and individually, view FTC as a priority. Within individual member companies, there are various initiatives underway to continue to promote and advance FTC
  • Several stakeholders agreed to provide the working group a high-level summary of initiatives undertaken that identify gaps or enhance current business practices reflecting FTC
  • A clarification of a “best interest” concept is expected to be added in the FTC guidance.

Ontario’s new financial services regulator said recently it plans to issue a revised guideline on FTC within a few months to help counter confusion over which guidelines to follow. Around the same time that CCIR-CISCO released their FTC guideline last year, the Financial Services Commission of Ontario released their own guidance.

“There’s been confusion about which one should we be following,” Mark White, CEO of the Financial Services Regulatory Authority, said Oct. 1 at an Insurance Institute of Ontario event. FSRA is looking to harmonize the Ontario guideline with the CCIR-CISRO one by “this calendar year and certainly this fiscal year,” White said at the time.

Industry concern is that they have to comply with two different sets of guidelines addressing the same issue, Koker Christensen, a partner at Fasken Martineau DuMoulin LLP and a member of FSRA’s stakeholder advisory committee for P&C insurance, told Canadian Underwriter Tuesday. Having to comply with both “creates a certain amount of confusion, complexity and work to try to figure out what you have to do comply with both of them,” Christensen said. “And it also begs the question of, ‘Well, why do we have these two different guidelines?’”