On April 6, 2022, the Canadian Insurance Services Regulatory Organization ("CISRO") adopted the Principles of Conduct for Insurance Intermediaries ("Principles"). In conjunction with that announcement, the Financial Services Regulatory Authority of Ontario ("FSRA") also announced a consultation process on its own draft guidance ("Proposed Guidance") on principles of conduct for insurance intermediaries. This post focuses primarily on the FSRA Proposed Guidance.
CISRO's Finalized Principles
As noted in our 2021 post on the draft version, the Principles supplement the 2018 Fair Treatment of Customers Guidance ("FTC Guidance") of CISRO and the Canadian Council of Insurance Regulators and align with Insurance Core Principles 18 and 19 of the International Association of Insurance Supervisors ("IAIS"). As we noted at that time, the Principles set out CISRO's expectations for insurance intermediaries, which can be summarized as follows:
- Comply with all applicable laws, regulations, rules and codes;
- Put the customers' interests ahead of their own;
- Identify, disclose and manage conflicts of interest;
- Provide objective, accurate and thorough advice that is suitable to the circumstances disclosed by each customer;
- Disclose and explain information relevant to the customer's decision-making clearly and understandably;
- Disclose all necessary and appropriate information about product promotions;
- Handle claims, complaints and disputes in a timely and fair manner;
- Take appropriate measures to protect personal and confidential information, while collecting only such information as is necessary, and using it solely for the purposes to which the customer has consented;
- Maintain an appropriate level of professional competence, including attendance at continuing education and training courses, while not acting outside one's areas of competence; and
- Provide appropriate oversight of employees and third-party contractors.
In CISRO's finalized version, the Principles are substantively similar to the draft version. There are a few substantive changes, however: for example, the draft's use of "must" in most of the principles has been softened to "expected to" in the finalized version. Another significant change is that intermediaries are now only "expected to seek appropriate information from the Customer" before giving advice, in contrast with the draft version's proposed requirement that they "must seek complete information" in that situation.
FSRA's Proposed Guidance
The Proposed Guidance sets out FSRA's interpretation of the Principles and outlines how it intends to apply them to licenced property & casualty and life & health insurers and intermediaries, as well as to service providers – such as P&C managing general agents ("MGAs") and third-party administrators – and certain unlicensed intermediaries, such as travel agency, bank and credit union employees who sell insurance. As we have previously discussed, FSRA had already adopted the FTC Guidance more generally, in its Approach on Fair Treatment of Customers in Insurance, effective January 1, 2021. Members of the Registered Insurance Brokers of Ontario (RIBO) continue to also be subject to the RIBO and Regulations, and RIBO has issued its own Guidance respecting the Principles.
Relationship with UDAP and other existing conduct rules
Certain deceptive acts are already prohibited by regulation under FSRA's enabling legislation. This regulatory scheme was recently updated in FSRA's new Unfair or Deceptive Acts of Practices ("UDAP") Rule (submitted for Ministerial approval on February 1, 2022), which we have discussed previously. The Principles therefore supplement the UDAP Rule, into which (as FSRA notes) they may eventually be consolidated.
Proposed Guidance's impact on industry processes and practices
FSRA expects that, once implemented, the Proposed Guidance would affect industry processes and practices in a number of ways, including the following:
- Sharing and explaining: Intermediaries and insurers that directly distribute insurance would be expected to share and explain the Principles to their customers. This would be a new obligation in Ontario.
- Self-assessment: Intermediaries, insurers and industry participants are expected to self-assess their policies, procedures, education/training and codes of conduct with respect to their consistency with the Principles.
- Oversight of intermediaries: Insurers and intermediaries with oversight obligations for intermediaries will be expected to make those intermediaries aware of the Principles, including incorporating them in education or training materials.
- Agent suitability screening: The Principles are to be added to insurers' toolkits for complying with their obligation under Reg. 347/04 to ensure that agents acting on their behalf are suitable. As FSRA states, "the insurer's compliance program should be reasonably designed to ensure its agents generally act consistently with the Principles of Conduct."
- Complaint review process: Insurers and intermediaries will be expected to refer to the Principles as they review customer complaints related to the conduct of staff or relevant intermediaries.
The Principles are intended to be principles-based, allowing insurers and intermediaries some latitude on how to achieve the outcomes in the Proposed Guidance, having regard to their the size, nature and complexity of their operations and activities.
Proposed Guidance's impact on FSRA's processes and practices
FSRA's licensing, supervision and complaint-handling functions will take the Principles into account. As the Proposed Guidance notes:
Failure to follow the Principles of Conduct could result in conduct that leads to FSRA requiring corrective action by industry, or FSRA may take enforcement action in line with the Act, regulations, FSRA rules or FSRA Act....
The Proposed Guidance provides a number of examples of how the Principles may be incorporated into its processes:
- Determining suitability for licensing: FSRA may consider adherence to the Principles as a factor when ascertaining suitability for licensing, at both the individual and institutional levels.
- Supervision: FSRA's targeted reviews will identify non-compliance with the Principles and may result in corrective action or enforcement action such as remediation plans, redress to affected customers, suspension or revocation of a licence, administrative penalties or prosecution in the courts, among others.
- Complaint-handling: While intermediaries and insurers are the first points of contact for customer complaints, when FSRA is dealing with an ongoing dispute relating to an intermediary's conduct, it will assess that conduct against the Principles. FSRA may also conduct more general reviews of insurers' complaint-handling processes, which will take the Principles and other standards of conduct into account.
Examples of conduct that would breach the Principles
Appendix B to the Proposed Guidance provides a non-exhaustive list of examples of conduct that FSRA would generally find to be in violation of the Principles:
- Agent misrepresenting insurance contract as a retirement savings instrument;
- Agent borrowing from his or her customers;
- Agent falsely claiming to have sold policies actually sold by unlicensed persons under his or her direction;
- Commission payments by MGA to unlicensed individual;
- MGA neglecting to inform insurer of apparent intermediary misconduct;
- Agent soliciting business via website of corporation that was not licensed by FSRA;
- Agent repeatedly selling policies to the same customers who would terminate them as soon as the agent had received his or her commission;
- Agent agreeing to act as the executor of a customer's estate;
- Agent being beneficiary of a client's insurance policy; and
- Misrepresentations by an agent on his or her licensing application or with respect to the completion of a continuing education course.
Comments were due in early May and are viewable on the consultation home page of the FSRA website.
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.