Insurance regulator looks at relaxing rules on referral fees

By Doug Watt | February 3, 2004 | Last updated on February 3, 2004
2 min read

(February 3, 2004) The Canadian Council of Insurance Regulators (CCIR) is considering amending the rules on referral arrangements to permit commission splitting on a wider scale.

Referral fees between licensed insurance agents are not prohibited. However, the issue gets complicated when a person who is not insurance-licensed makes the referral.

In that instance, a flat referral fee would likely be allowed, but most jurisdictions in Canada prohibit commission splitting, considering it to be part of the process of soliciting the purchased insurance, CCIR says.

In a recently released discussion paper on the topic, the umbrella group for provincial insurance regulators floats the idea of lifting, or at least partially lifting, the restriction on commission splitting. “If referral fees can be permitted with safeguards to consumers, CCIR questions why the insurance industry should be denied this means of reaching consumers.”

The regulator is asking for comment on two options: lifting the restriction entirely, or restricting referral arrangements to those who are regulated financial services providers.

CCIR notes that some individuals who are dually licensed — for instance in mutual funds and insurance — hold the insurance licence for the sole purpose of making insurance referrals. “These individuals have argued that there is no consumer protection problem arising from straightforward referrals and have questioned why they need a life licence.”

There are potential pitfalls to both approaches, CCIR concedes. On the first option, “there is a risk that an unlicensed person making the referral may have been soliciting insurance or may have given insurance advice to the person being referred,” the regulator says.

However, restricting referral arrangements to regulated intermediaries might limit an agent’s ability to “use creativity to find new sources of referral and reach potential clients who might benefit from insurance but not otherwise be approached.”

The idea of lifting referral restrictions entirely doesn’t sit well with some life agents.

“I think the regulators would be doing consumers a disservice by allowing commission sharing with un-licensed personnel,” wrote Jim Bullock in the For Advisors Only online forum.

“Allowing commission sharing means the third party receives money only if a sale is made; and receives more if an expensive product is sold,” Bullock says.

No matter which option is favoured, CCIR is also proposing that the disclosure of referral arrangements to clients be made mandatory. British Columbia already has that requirement, the regulator notes.

The CCIR is also asking for feedback on referral fee amounts. Percentage fees or other payments based on the sale of a policy could be permitted or a cap could be established.

Comments on the CCIR discussion paper will be received up to March 5, 2004.

What do you think about CCIR’s initiatives? Should the lift the ban altogether or limit it to regulated financial services providers? Share your thoughts and opinions about this issue with your fellow advisors in the Talvest Town Hall on

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Doug Watt