Insurance regulation at

By Kate McCaffery | November 3, 2005 | Last updated on November 3, 2005
3 min read

The insurance industry is at a “critical juncture” when it comes to regulation, experts say. Regulators are keenly interested in efforts aimed at greater disclosure and transparency, so much so that they have issued consultation papers suggesting such principles be written into law.

The industry on the other hand has come back saying such changes would be wasted, given that disclosure and prioritizing a client’s interests are already part of the industry’s standard practices.

Panelists speaking at the IFB’s fall summit in Toronto on Wednesday told conference delegates that they need to voluntarily adopt best practices in their own daily routines as soon as possible, pointing out to fallout from the Eliot Spitzer campaign south of the border, the Canadian Council of Insurance Regulators (CCIR) and Canadian Insurance Services Regulatory Organizations (CISRO) survey of industry practices in Canada and the resulting Relationships between Insurers and Sales Intermediaries Consultation Paper.

Panelists also discussed Ontario regulations that govern disclosure of conflicts of interest, and suggested resources that advisors can access to become more compliant.

If these practices “are not implemented on a voluntary basis, they’ll be regulated. If it’s regulated, it may have bells and whistles that we don’t have much control over,” says Leslie Byrnes, vice president of distribution at the Canada Life and Health Insurance Association. “There is a great opportunity at the moment to implement changes on a voluntary basis,” she said, demonstrating that the industry’s solutions are effective and that cumbersome, regulated alternatives are not necessary.

Byrnes points out that IFB, along with other industry associations and most insurance companies already have resources like template letters that advisors can modify for their own needs.

Terri Di Florio, president of Hub Financial Group agrees, noting that regulators could also come up with requirements that make it difficult to complete a sale. “This stage that we’re at is critical to the future of the industry,” she says.

Required disclosures for each transaction can be broken down into three areas: product details, consumer rights and responsibilities, and key details about the advisor.

In creating product disclosures for clients, discuss market research, different product options available, the companies you represent and key products features or details such as whether or not the product is guaranteed, along with any fees or exclusions, the panelists recommended.

It’s also important to tell clients it’s their responsibility to ensure that all personal information is correct, they added, and the risks they could encounter — namely that a policy will likely be worthless if their information is incorrect or incomplete.

The biggest sticking point, and perhaps most onerous task for some advisors however, is disclosure regarding their own professional situation. This type of disclosure should be a “living document” that is revised and revisited as frequently as necessary, and reviewed with clients at every point of sale.

Explain that insurers use a commission-based incentive system that includes the opportunity for additional monetary and non-monetary incentives, and offer to expand on the topic if the client desires, the panel suggested. Along with disclosing how you’re paid, list any conflicts of interest such as business partnerships, referral arrangements with your business partners, MGAs, and any lending arrangements or any ownership ties. These should all be disclosed “whether you think it makes a difference or not,” says Susan Allemang, regulatory affairs specialist at the IFB.

Whether or not the advisor acts on such perceived conflicts is not the issue. “For every single sale, for every single one of you there’s a potential for conflict,” says Di Florio. “It’s a wide, wide definition. In the event you’re not sure, the best solution is to always declare.”

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Kate McCaffery