On May 23, 2013, the Canadian Council of Insurance Regulators (CCIR) issued a position paper entitled Position Paper: Electronic Commerce in Insurance Products and stakeholders have until July 26, 2013 to prepare submissions in response. The position paper is a follow up to an issues paper released in January 2012 by CCIR's Electronic Commerce Committee (ECC) entitled Electronic Commerce in Insurance Products. Twenty-five submissions were received as a result of the January 2012 issues paper, and the May 2013 position paper is ECC's communication back to stakeholders and recommendations to CCIR members1 on this topic.
The real driver for this exercise is the significant rise in Internet usage by insurance providers. This is borne out, with respect to auto insurance, by a 2013 Canadian Auto Insurance Satisfaction Study conducted by J.D. Power & Associates which revealed, among other things, that the percentage of Canadian auto insurance customers using non-traditional channels, such as an insurer's website, has increased by as much as seven percentage points from 2012, while customer interaction by means of call centres declined by one to four percentage points.2 According to the position paper, CCIR's concern is that customers should be afforded access to necessary information and protections, even when purchasing insurance by means of an electronic channel (e.g. over the Internet).
The purpose of the position paper is to obtain stakeholders' views on the following seven consumer protection goals identified by CCIR:
1. Access to information/advice from a licensed advisor
The position paper notes that, even with increased Internet use, there is still a substantial information imbalance between the consumer and the insurer. The ECC's position is that online insurance providers – whether they are licensed agents, insurers or firms – should be responsible to ensure that consumers make informed decisions. Accordingly, the CCIR recommends that insurers should be required to:
- provide consumers with the necessary information regarding the product that is being offered, in a timely and comprehensive way;
- give the consumer access to suitable advice, depending upon the complexity of the product; and
- educate the consumer as to the importance of obtaining suitable advice.
2. Knowledge as to whether the consumer is dealing with a regulated entity
Because information on the Internet derives from many countries and various sources, consumers are at risk of not knowing the proper identity of the insurance provider. The CCIR recommends that information about the insurance provider should be "easily, directly and permanently" accessible on the websites of all providers that distribute insurance products online, such as legal name, address, telephone and electronic contact information, a statement regarding the provider's registration status and information about how to file a complaint (including a link to the regulator's website).
3. Adequate access to product information
The position paper notes that consumers need to have access to a minimum amount of information about an insurance product and require sufficient disclosure in order to give them an understanding of the product and its associated costs, all in a "simple, clear and timely manner". The CCIR recommends that, when offering insurance products online, the insurance provider should draw the consumer's attention, before they purchase the product, to the following information, in clear and simple language:
- type of consumer for whom the product is intended;
- main characteristics of the product;
- options and coverage provided;
- exclusions and limitations;
- total premium and taxes (or the basis for the calculation);
- cancellation rights, details of duration of cancellation period and procedures for cancellation; and
- any time limit on the validity of the information provided.
4. Opportunity to review and verify the consumer's own information
Since consumers themselves are the ones who complete online insurance applications without assistance, the CCIR recommends that online providers of insurance products should give the consumer a summary of the information submitted by them in the application process, before a contract is concluded, for verification purposes.
5. Access to terms and conditions of the insurance
The position paper notes that it is important that consumers have the ability to maintain a copy of the application and the insurance contract for reference purposes. The CCIR recommends that providers offering insurance products online should give the consumer a copy of the application and the insurance contract "in a form that enables reproduction and storing".
6. Ability to rely on the transaction being implemented
Because computer systems are not fail-safe, an attempted online insurance transaction could result in the actual placement not being carried out, information not being transmitted or even unauthorized alteration of a document. The CCIR recommends that online insurance providers should be responsible to use computer systems that are reliable.
7. Security of consumers' personal information
Since internet use brings with it potential vulnerability to such risks as unauthorized disclosure of personal information, identity theft, fraud and money laundering, the CCIR recommends that online insurance providers should be responsible to ensure that the consumer's personal information is maintained securely.
The position paper also reviews and makes recommendations regarding the issue of electronic beneficiary designations. Questions arising with respect to the validity of beneficiary designations are ultimately resolved by the courts, and admissibility and evidence play a role in the final determination. Insurers in Canada typically require beneficiary designations to be made in paper form and, where there is no written designation, insurers treat the insurance contract as having no designated beneficiary and, as a result, they pay the insurance proceeds to the estate. The position paper points out that this practice may in fact be contrary to the consumer's original intention and can result not only in delays, but in the insurance proceeds becoming taxable and subject to claims of creditors. Accordingly, the CCIR recommends that:
- insurers should have effective systems in place by which they can offer consumers the option of designating and changing beneficiaries by electronic means;
- electronic beneficiary designations should be followed up with confirmation in writing; and
- any regulatory or best practices guidelines should address the evidentiary issues.
Termination by insurer
Generally speaking, notice of termination of an insurance contract by an insurer must be given by registered mail or personal delivery. The original CCIR issues paper queried whether insurers should be able to terminate by electronic means (e.g. with both parties' consent), but there was not a broad consensus to this approach. Therefore, the CCIR is not recommending any changes to existing paper termination requirements at the current time.
Websites that offer price comparisons are becoming increasingly popular. The position paper points out that providing comparisons of coverage options is similar to the advisory role of brokers and questions whether these sites could in fact be carrying on activities that require licensing. In addition, the manner in which these sites are remunerated, and their ownership structure or business relationships with the insurers, call into question their independence and raise disclosure issues. In the position paper, the CCIR notes that there should be a bright line between the simple act of comparison shopping and the transaction of insurance. Accordingly, the CCIR recommends that:
- comparison shopping sites should not provide advice, hold themselves out as licensed insurers or representatives or post insurance applications (which could mislead consumers); and
- regulators should survey these sites for enforcement purposes.
The position paper also addresses social media, due to the growing popularity of this medium. The CCIR notes that, since social media is a form of communication just like any other, current legislative and regulatory frameworks apply. As such, the rules relating to ethics, advertising, suitability of the product for the consumer and file record-keeping should be enforced when insurers and representatives use social media.
Existing insurance legislation and regulation has not kept in
step with technological changes, such as the Internet as a means of
shopping for, choosing and concluding purchases of insurance
products. The CCIR's position paper addresses a number of
issues that need to be resolved in order to ensure that changing
methodologies for consumer/intermediary/insurer interaction are
subject to appropriate licensing requirements and reasonable
consumer protection measures. Because these methodologies for
consumer interaction continue to evolve, it is necessary to adopt
relevant legislative and regulatory requirements that will provide
more certainty as to the boundary line between activities that
should be restricted/regulated or require licensing and those that
should not. As stated in the introduction, stakeholders have until
July 26, 2013 to provide commentary on the CCIR's
1 The CCIR members are the insurance regulators (typically the Superintendents) of each province/territory of Canada who are in a position to recommend legislative changes in their respective jurisdictions. A representative of the Office of the Superintendent of Financial Institutions is an associate member of CCIR.
2 Jeremy Bowler, J. D. Power & Associates, Channel Surfing, Canadian Underwriter May 2013, p.62
The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.
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