What the regulators’ data says about insurers and fair treatments of customers
December 10, 2020 by David Gambrill
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Canadian P&C insurers have generally embraced the general principles of the Fair Treatment of Consumers (FTC), but the industry still has some work to do in specific benchmark areas, according to an annual statement on market conduct issued by the Canadian Council of Insurance Regulators (CCIR).
As defined by the CCIR, a national association of provincial P&C insurance regulators, FTC principles include, among other things:
- developing products that pay due regard to consumer interests;
- providing clear information to consumers before, during, and after the sales process;
- giving high-quality advice; and
- dealing with customer complaints and disputes in a fair manner.
“Annual Statement results indicate that while insurers value FTC principles, there are opportunities for some insurers to better demonstrate how they have incorporated FTC principles,” the CCIR concluded in its 2019 Annual Statement on Market Conduct—Public Report, released in December 2020.
For example, data in the report show that the industry seems to prefer addressing FTC through a documented code incorporating FTC principles (68% of 231 P&C insurers canvassed by the CCIR said this), as opposed to a standalone documented policy that specifically addresses FTC (53% of the P&C industry reported having a standalone policy).
iStock.com/Wasan Tita
Of those P&C insurers reporting that they had an FTC code in place, the numbers “vary greatly based on size of the insurer,” the CCIR reported.
For small P&C insurers (direct written premiums under $50 million), only 61.1% reported having an FTC code in place. That number increased to 68% for medium-sized insurers (DWP between $50 million and $300 million) and fully 96.7% of large insurers (more than $300 million DWP).
The data come from the CCIR’s annual statement, which the regulator established in 2017 to collect information from insurers across Canada regarding their governance, practices, policies, and treatment of customers. Insurers are required to complete and file the statement according to the laws in their respective jurisdictions.
Data in the CCIR annual statement suggest that while the industry is strong on developing FTC strategies and objectives, there is a slight lag in developing specific measures and FTC performance reports.
For example, fully 94% of P&C insurers reported developing strategies, objectives and initiatives to promote FTC. But when asked if they had developed “measures and reports to inform management and the board of directors of the organization’s performance” in FTC, the percentage dropped somewhat to 82.6%.
The regulator’s statistics also noticed an interesting trend regarding “sales and incentives management.” In other words, are consumer satisfaction or customer complaints factored into a P&C salesperson’s key performance measures? (The CCIR’s annual statement data does not address compensation methods for the broker distribution channel.)
The annual statement shows that only 34% of P&C insurers factor consumer satisfaction into their key performance measures, while even fewer (27%) factor in the number or type of consumer complaints received.
And when it comes to an employee’s pay, only 13% of P&C insurers factor consumer satisfaction into their metrics for compensation incentives or commissions, while just 3% of insurers incorporate consumer complaints into their sales incentives or commissions structure.
Feature image via iStock.com/FG Trade
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CCIR fair treatment of customers:
For years Carfax odometer data purchased from third party vendors such as oil change companies has been used by insurance companies to capture extra premium revenue by monitoring annual distance driven beyond the figure declared by the customer, to combat “premium leakage”. Carfax data is downloaded in bulk for the software to identify drivers who have exceeded their declared annual distance limit sufficient to raise their premium. Fair and reasonable.
Lets be even more FAIR. If the software can detect those drivers who have exceeded their declared limit, it logically follows that the software can be programmed relatively easily to detect situations where there has been a decrease in annual distance driven, sufficient to earn a decrease in premium charged to the vulnerable customer. As it stands now the insurers are reaping in a windfall with no effort, if for some reason the customer is not wary.
Since the issue in your article is fairness to the customer, the Regulator{s} should be proactive and walk the walk, and order the insurers to implement the programming change, in the interest of fair dealing to protect the vulnerable public. Adding the extra capability to the software may perhaps add too much transparency, and offset some of the premium leakage figures that insurers like to whine about. Not to mention the dent in their profits. There is a price to FAIRNESS.