Canadian Underwriter

Same rules apply to brokers/insurers designing incentives

May 19, 2023   by David Gambrill

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Canada’s insurance regulators have confirmed insurers and brokers are each expected to comply with new guidance related to designing and managing sales incentive programs, even though the insurer is ultimately responsible for the fair treatment of customers for the full life cycle of the product.

The Canadian Council of Insurance Regulators (CCIR) issued a Q&A document this month answering questions about its new, principles-based guidance for managing insurance sales incentive programs. The guidance was first released in November 2022.

The Incentive Management Guidance (IMG) provides guidance to insurers and brokers on how to manage and design sales incentive programs that align with the principles contained in the regulators’ Fair Treatment of Customers (FTC) guidance released in September 2018.

A number of questions in the Q&A document focus on the shared responsibility of both insurers and their brokers in designing incentive programs that “avoid or properly manage conflict of interest risks in their incentive arrangements,” as the CCIR document frames it.

The regulators say the IMG is not intended to imply that insurance companies must direct the incentive programs of their brokers.

“The IMG applies to the activity of paying compensation and/or designing incentive arrangements,” the CCIR’s Q&A document states. “The IMG provides principles and expectations for incentive management that align with FTC, regardless of the entity (insurer/intermediary) who is engaged in the activity. As such, the IMG does not separate expectations between insurers and intermediaries.

“That said, the IMG may apply to insurers and intermediaries in different ways. The IMG provides insurers and intermediaries with the necessary latitude to determine the requisite strategies, policies, processes, procedures, and controls to satisfy the IMG according to their respective natures, sizes, and complexity of their activities.

“At the same time, the insurer remains responsible for FTC throughout the life-cycle of the insurance product, as it is the insurer that is the ultimate risk carrier. The insurer’s ultimate responsibility does not absolve [brokers and agents] of their own responsibilities for which they are accountable. Treating customers fairly is a mutual responsibility when insurers and intermediaries are both involved.”

Related: Financial incentives for selling insurance: The regulators’ take

The CCIR’s definition of “intermediaries” captures individual agents, brokers, MGAs, representatives, third-party administrators, national accounts — basically, any “business entities that are authorized to distribute insurance products and services.”

CCIR’s Q&A document explicitly states: “The IMG does not prohibit any incentive practice.” Rather, it clarifies the regulators’ expectation that the outcomes of the incentive programs must align with the fair treatment of consumers.

The document makes it clear the incentives need not be merely monetary. Inducements to sell an insurance product may include non-cash benefits such as travel, goods, hospitality, entertainment, titles, memberships, contest entry, insurer client referrals, and access to services related to performance targets.

“Accordingly, as an example, an intermediary who designs a contest to win a trip is covered under this [IMG] guidance,” the CCIR’s Q&A document reads. “Another example would be an intermediary who chooses to use overrides received from the insurer to promote a contest or provide extra bonuses to representatives.”


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