The Financial Services Regulatory Authority of Ontario ("FSRA") recently began a stakeholder consultation process relating to its proposed rule on unfair or deceptive acts or practices (the "UDAP Rule"). In a media release dated December 18, 2020, FSRA announced that this principles-based rule reflects its intention to better protect consumers while also making Ontario's UDAP rules more flexible and responsive to changing circumstances.
- The UDAP Rule will be FSRA's first Rule and will replace the current Unfair or Deceptive Acts or Practices Regulation 7/00 under Ontario's Insurance Act. That Regulation, as FSRA acknowledged, has been widely regarded as outdated, too prescriptive and a barrier to innovation. The release of the UDAP Rule follows a FSRA consultation process with industry stakeholders on reform of the Regulation.
- The UDAP Rule will apply to insurers, brokers, intermediaries, adjusters and providers of goods and/or services that are connected to insurance claims, such as certain legal practitioners, health service providers, tow-truck operators, automobile storage facilities and automobile repair shops.
- Public consultation with stakeholders and the general public is open until March 18, 2021.
If the UDAP Rule is adopted and the previous Regulation revoked, FSRA plans a further stage of Rule-making in this area, including to further advance the transition toward principle-based regulation.
Defining "Unfair or Deceptive Acts or Practices"
FSRA's goal is to provide industry participants with clear guidance. Section 438 of the Insurance Act (the "Act") empowers FSRA to prescribe a definition of UDAP for the purposes of that legislation. Accordingly, at the core of the UDAP Rule is a definition of "unfair or deceptive acts or practices" ("UDAP"):
Conduct, including inaction or omission, which results in, or could reasonably be expected to result in the outcomes, events or circumstances set out in s. 3 through s. 10 of this Rule.
Two key elements of this definition are discussed below: (i) the meaning of "could reasonably be expected" and (ii) the specific "outcomes, events or circumstances" that result from UDAP.
Meaning of "could reasonably be expected"
"Could reasonably be expected" is defined in terms of what would be expected by a reasonable person in the position of the person in question, "with knowledge of all and any relevant facts and circumstances the person knew about or, with reasonable diligence under the circumstances, ought to have known [about]".
However, for those persons listed below, the above definition is modified to refer more narrowly to "what would be expected by a reasonable person in that person's business or profession" rather than simply to "a reasonable person", with the remainder of the definition remaining essentially the same.
- Agents, brokers, adjusters and insurers;
- Tow-truck operators, automobile storage facilities, automobile repair shops;
- Anyone else who "provides goods or services to a claimant which are fully or partially expected to be paid for through the proceeds of insurance"; and
- Directors, officers, employees or legal representatives of any of the above.
The "outcomes, events or circumstances" that result from UDAP
Conduct that results in, or could reasonably be expected to result in, any of the following "outcomes, events or circumstances" may constitute UDAP. (The numeral preceding each paragraph corresponds to the relevant section of the UDAP Rule.)
Non-compliance with the Insurance Act, regulations or rules
3. Contravening the Insurance Act (including any regulation or rule thereunder) (i) by committing any prohibited act; (ii) through any form of non-compliance that results in unfair treatment of, or discrimination against, a person; or (iii) through any form of non-compliance by the subject of an examination or purported examination.
4. Unfair discrimination, with respect to premiums, rates, benefits or contract terms or conditions, either (i) between individuals of the same class and expectation of life; or (ii) with respect to risks in Ontario relating to the same physical hazards in the same territorial classification.
Unfair claims settlement practices
5. Unreasonable or unfair resolutions or delays in settling claims, including:
a. Arbitrary, capricious or
b. Not acting in good faith;
c. Seeking a result that is inequitable;
d. Seeking a result that is inconsistent with the contract;
e. Imposing unreasonable or unfair costs or expenses on the claimant;
f. Communicating in an untimely manner;
g. Misrepresenting the claimants' rights or the insurer's obligations under the contract; or
h. Failing to follow fair, simple and accessible claims-handling procedures, including a failure to provide the claimant with timely information about the status of its claim, the process for settling the claim or reasons for a decision made respecting the claim.
Fraudulent or abusive conduct related to fees and billing practices
6. Fraudulent or abusive conduct related to goods or services provided to a claimant, including:
a. Charging for anything relating to
a claim that was not actually provided, or which was provided in a
b. Referral fees being asked for, paid or accepted in connection with goods or services paid to a claimant;
c. Asking an unreasonable amount for services provided to a claimant;
d. For auto insurance only, asking a claimant to sign a claims form or other document in other than the form approved by the FSRA Chief Executive Officer, or asking a claimant to sign certain types of forms or documents before the goods or services described in them have been provided; or
e. Communicating information about the business, billing practices or licensing status of a person providing services that a reasonable person, in the position of the intended recipient of the information, would consider false, misleading or deceptive.
Incentives and inducements, except those that reduce insured risk
7. The offering of incentives or inducements under many circumstances, including where the result would be to induce a person to buy an insurance product that is not suitable, given the options in the marketplace. Additionally, gifts and incentives:
a. Must not be prohibited under the
Act, including the regulations and rules;
b. Must be provided in a consistent way, with clear and transparent communication;
c. Must be provided in a manner that is neither discriminatory nor anti-competitive; and
d. In the case of automobile insurance, must not be calculated by reference to prohibited factors.Overall, the proposed changes to the incentives and inducements rules are intended to benefit consumers by encouraging innovation, competition and choice by allowing insurers to offer incentives, including rewards and rebates, that meet certain criteria.
However, the changes will not affect the current prohibition under the Agents Regulation under the Insurance Act against licensed life insurance agents offering inducements to secure business.
Overall, the proposed changes to the incentives and inducements rules are intended to benefit consumers by encouraging innovation, competition and choice by allowing insurers to offer incentives, including rewards and rebates, that meet certain criteria. However, the changes will not affect the current prohibition under the Agents Regulation under the Insurance Act against licensed life insurance agents offering inducements to secure business.
Inaccurate or misleading communications about a contract or claim
8.The communication to a person of inaccurate, inappropriate or misleading advice or information in any form, with respect to the terms, benefits or advantages of an insurance contract (including any comparison of contracts) or with respect to a claim or the claims process.
Unfair treatment of auto insurance customers
9. Unfair treatment of auto insurance customers or policyholders in a range of circumstances, including (among others) arbitrary, capricious, malicious, bad faith or biased treatment, misuse of credit information and misclassification of a person or vehicle under the applicable risk classification system.
Failure of auto insurance agent or broker to offer insurer's (or affiliate's) best rate
10. Failure by an agent, broker or insurer to offer the lowest automobile insurance rate offered by an insurer and its affiliated insurers (as defined in s. 414 of the Insurance Act). Determination of the lowest rate can involve factors such as (among others) applicable declination grounds, risk classification systems and methods of distribution for each insurer or affiliated insurer.
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