On July 14, 2021, the Financial Services Regulatory Authority of Ontario ("FSRA") released a revised version of its proposed Unfair or Deceptive Acts or Practices Rule ("UDAP Rule" or "Rule"). The changes in the revised version are primarily in response to comments received from industry participants and other interested parties. After an additional comment period that ends August 11, 2021, FSRA will finalize the Rule.

We previously discussed the December 2020 draft of the Rule (the "First Draft") in detail. In this post, we look at some of the changes that FSRA has made to the First Draft in light of the comments that it received. These changes include reaffirming the existing prohibition on incentives and rebates for life, sickness and accident insurers and clarifying some of the considerations that will be employed in applying the proposed principles-based approach, notably as regards reasonableness.

Background

As noted in our previous post, FSRA's intention in adopting a principles-based UDAP Rule is to better protect consumers while building in the flexibility required as a diverse industry responds to social and technological change. The UDAP Rule will be FSRA's first Rule and will replace the current UDAP Regulation 7/00 under Ontario's Insurance Act - a regulation that both FSRA and many industry participants agree is outdated and overly prescriptive and hinders innovation.

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. Once the Rule is in place, FSRA plans a further stage of rulemaking in this area that (among other things) will assist in the transition toward principles-based regulation.

Response of Stakeholders to the First Draft

Stakeholders who commented on the First Draft generally supported the principles-based, outcomes-focused approach, although some asked for greater clarity on how principles such as reasonableness requirements would be applied. On the other hand, some responses to the proposal to relax restrictions on rebating and incentives were less enthusiastic, particularly in the life and health sector. These comments led FSRA to propose some changes to the First Draft, as described below.

Some of the most common feedback on the First Draft is summarized on pages 2-3 of FSRA's "Notice of Changes and Request for Further Comment" ("Notice of Changes"). FSRA has also published a detailed summary of the comments that were submitted.

Significant Changes from the First Draft

FSRA's proposed changes, summarized on pages 3-5 of the "Notice of Changes", include the following:

  • Amending the definition of "contract of insurance" to refer directly to sections 171(1) and 290 of the Insurance Act and thereby make it clearer that life, accident and sickness insurance, as defined under the Act, fall within the Rule's scope.
  • Reworking the section concerning the "reasonable person" standard to clarify that considerations relevant to reasonableness can include an insurer's nature, complexity, operations and risk profile, in addition to its size.
  • Deleting the list of Human Rights Code provisions that are relevant to interpreting "discrimination" under the Rule, because this might have been taken to imply that the rest of the Code is not relevant, which was not FSRA's intent.
  • Clarifying that lawyers and paralegals will generally be exempt from the Rule with respect to professional services that they provide in connection with activities that are subsequently found to constitute "fraudulent or abusive conduct related to goods and services provided to a claimant".
  • Expanding the references to delay in claims "adjustment or settlement" (which are typically used in relation to P&C insurance claims) to also include "adjudication", which customarily used in relation to life and health insurance claims .
  • Requiring claim status information to be not only timely but "clear, comprehensive and adequate".
  • Broadening the scope of the prohibition on incentives, rebates, etc., to include anything of that type that is "prohibited by law", rather than merely by the Insurance Act and its associated rules and regulations, so that, for example, it also includes the prohibitions in the Registered Insurance Brokers Act.
  • Prohibiting incentives, rebates, etc. in relation to life insurance and accident and sickness insurance. The First Draft would have allowed such incentives under certain conditions. In light of the negative comments generated by that proposal, the revised proposed Rule has reverted to the status quo, although FSRA intends to hold further discussions with stakeholders on this subject.

The remaining changes are technical in nature, e.g. to ensure that the Rule comes into force on the same day that certain related consequential amendments to the Insurance Act take effect.

Next Steps

As noted, the consultation period ends on August 11, 2021, after which it is anticipated that FSRA will finalize the Rule and announce a date for its implementation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.