2024 Year In Review In Insurance

As anticipated in our 2023 Year in Review, there were several developments in the regulation of the insurance sector in Canada in 2024. This article provides a recap of some of the substantial changes that were made to the regulation of insurers and insurance intermediaries in Canada in 2024 and will highlight issues that insurers and other industry participants should watch for in 2025.

Regulatory Changes

Federal Regulators

a. Department of Finance Consultation on Measures to Strengthen Canada's Financial Sector

On September 11, 2024, the Department of Finance Canada ("Finance Canada") ended its third phase of consultations of federally regulated financial institution ("FRFI") statutes, as part of the comprehensive financial sector legislative review announced in Budget 2022. This most recent consultation (the "Consultation") presented proposals and sought views and written submissions in key areas including supporting a competitive market structure, enhancing consumer protections, modernizing the financial sector framework, adapting to geopolitical risks and upholding world-class regulation. With regards to the insurance sector, the Consultation notes that Finance Canada is considering updating several key statutory thresholds including, under the Insurance Companies Act, the ownership of farmland, timberland and similar assets, and potentially moving certain thresholds to guidelines so that they can be more quickly amended.

For more detail on the Consultation please refer to our article here.

b. OSFI Releases Final Guideline on Operational Risk and Resilience for Federal Financial Institutions

On August 22, 2024, the Office of the Superintendent of Financial Institutions ("OSFI"), Canada's principal bank and insurance solvency and prudential regulator, published the final version of Guideline E-21: Operational Risk Management and Resilience ("Guideline E-21"). Guideline E-21 sets out OSFI's expectations for financial institutions to prepare for and recover from adverse events and expectations for financial institutions to withstand, adapt to, and recover from disruptions while maintaining critical operations. OSFI established the following four key requirements for all FRFIs, including foreign bank and insurance company branches, based on their size, strategy, risk profile, operational complexity, and interconnectedness with the financial system: (i) governance, (ii) operational risk management, (iii) operational resilience and (iv) key areas of operational risk management that strengthen operational resilience. While the final Guideline E-21 maintains the core principles from its most recent draft in 2023, it has incorporated feedback from an extended public consultation that concluded in February 2024.

The revised Guideline E-21 is designed to have a phased implementation timeline, with the first two sections effective immediately and full compliance required by September 1, 2026. The full timeline is as follows:

• August 22, 2024: section 1 (Governance) and section 2 (Operational Risk Management) were effective immediately from the date of the Guideline's publication.
• September 1, 2025: Full adherence to section 4 (Key Areas of Operational Risk Management That Strengthen Operational Resilience) is expected by this date. OSFI expects financial institutions to remediate any gaps in compliance for these areas by this date.
• September 1, 2026: Full adherence to the Guideline is expected by this date. OSFI expects financial institutions to have completed scenario testing for all critical operations by September 1, 2027.

Please refer to our article for more information on the final Guideline E-21 and changes from the previous draft.

c. OSFI Issues Regulatory Notice for Managing Culture Risk

On November 21, 2024, OSFI released a regulatory notice on managing culture risk (the "Regulatory Notice"). The Regulatory Notice follows industry feedback on OSFI's draft Culture and Behaviour Risk Guideline issued on February 28, 2023 and sets OSFI's expectations for managing culture risk, in particular around governance of culture risk, fostering a desired culture and enterprise-wide culture management. It applies to all FRFIs including insurance companies and foreign insurance company branches to the extent it is consistent with applicable requirements and legal obligations related to their business in Canada. The Regulatory Notice was effective as of the date of publication and replaces and supersedes the draft Culture and Behaviour Risk Guideline.

d. Additional New OSFI Guidelines

• On November 21, 2024, OSFI announced that it will exempt uninsured mortgage straight switches from the prescribed minimum qualifying rate (MQR) and will implement portfolio loan-to-income (LTI) limits on the uninsured mortgage portfolios of institutions.
• On November 21, 2024, OSFI published the final Life Insurance Capital Adequacy Test (LICAT) 2025 guideline and related documents which are applicable to Life Insurance and Fraternal Companies. The final LICAT 2025 guideline came into effect on January 1, 2025.
• On November 21, 2024, OSFI published a revised Mortgage Insurer Capital Adequacy Test (MICAT) guideline that came into force on January 1, 2025. The MICAT guideline is applicable to mortgage insurance companies which are also considered to be property and casualty companies.
• On November 21, 2024, OSFI rescinded the OSFI IFRS 17 Advisory issued to support the transition to the new IFRS insurance contracts accounting standard in Canada and published the final IFRS 17 Insurance Contracts (IFRS 17) Guideline. The final IFRS 17 Guideline is applicable to federally regulated insurers and became effective as of the date of publication.

e. Budget 2024: Financial Institutions Update

The 2024 federal budget (the "Budget") proposed a number of legislative measures directed at the financial services sector, including:

• Enhancing consumer protection measures in respect of consumer lending, including by capping the cost of optional insurance products for high-cost loans and payday loans;
• A number of measures in respect of affordability of financial services;
• Plans to legislate a framework for consumer-driven banking (also known as open banking) in Canada;
• Plans to amend the various financial institutions statutes to adopt diversity model disclosure requirements in respect of boards and senior management similar to those under the Canada Business Corporations Act, which we expect to be issued in early-2025;
• Amendments to the various financial institutions statutes to extend their respective sunset dates from June 30, 2025 to June 30, 2026; and
• Plans to establish a subsidiary of the Canada Mortgage and Housing Corporation to deliver flood reinsurance. Budget 2024 proposed to provide $15 million to the Canada Mortgage and Housing Corporation in 2025-26 to advance implementation of a national flood insurance program by 2025. Budget 2024 also proposed to provide $6.9 million over five years, starting in 2024-25, with $1.4 million ongoing for the Meteorological Service of Canada's early warning system for extreme weather events, with a focus on floods and storm surges.

For more detail on the 2024 federal budget, please refer to our article here.

Provincial Regulators

f. FSRA Releases Proposed Guidance on Automobile Insurance Rating and Underwriting Supervision Guidance

The Financial Services Regulatory Authority of Ontario ("FSRA") released their Proposed Guidance: Automobile Insurance Rating and Underwriting Supervision Guidance (the "Proposed Guidance"). The Proposed Guidance uses a principles-based, outcomes-focused approach to automobile insurance rate regulation and underwriting rules, and will affect all insurance companies and their intermediaries providing automobile insurance in Ontario, including but not limited to those underwriting private passenger automobile, non-private passenger automobile, and fleet. These changes are intended to uphold principles of consumer protection and fairness, while promoting a competitive environment for insurers. Please refer to our article for more information on the Proposed Guidance.

g. Amendments to the Ontario Unfair or Deceptive Acts or Practices Rule

As we noted last year, the Unfair or Deceptive Acts or Practices ("UDAP") Rule was approved in Ontario by the Minister of Finance in early 2022 and was effective as of April 1, 2022. The UDAP Rule applies to insurers of life & health ("L&H"), and property and casualty ("P&C") risks, including auto and related providers of goods and/or services.

Effective June 1, 2023, the Minister of Finance approved an amendment to the UDAP Rule by eliminating new sales of segregated fund contracts that charge deferred sales charges ("DSCs") to customers who withdraw their investments early. Accordingly, as of June 1, 2023, life insurers and agents were banned from issuing and selling new individual segregated fund contracts that impose DSCs on customers. Furthermore, on February 8, 2024, FSRA announced that the Minister of Finance approved a second amendment to the UDAP Rule which addressed concerns about DSCs for customers who already own individual segregated fund contracts with DSCs. The second amendment to the UDAP Rule became effective on February 14, 2024. The amendments to the UDAP Rule may be found here.

h. British Columbia Establishes the Insurer Code of Market Conduct for Insurers

Effective April 1, 2024, all insurers authorized in British Columbia were required to adopt and comply with the Insurer Code of Market Conduct (the "Code"). The Code reflects the Canadian Council of Insurance Regulators' ("CCIR") Conduct of Insurance Business and Fair Treatment of Customers ("FTC") guidance. In particular, the Code uses the 12 expected outcomes from the CCIR's FTC guidance as principles that insurers in British Columbia are required to follow. The Code applies to all British Columbia incorporated insurance companies, extraprovincial insurance corporations, entities deemed to be societies under section 191 of Financial Institutions Act, and mutual fire insurance companies. Reinsurers, reciprocal exchanges, and captive insurance companies are excluded from the requirement to comply with the Code.

i. Alberta Issues Interpretation Bulletin Allowing Captives to Reinsure Third-Party Risks

On December 12, 2024, the Alberta Superintendent of Insurance (the "Alberta Superintendent") published Interpretation Bulletin 08-2024 (the "Bulletin"), permitting captive insurance companies licensed in Alberta ("Captives") to reinsure third-party risks. The Bulletin provides clarity from the Alberta Superintendent with regards to how sections 27 and 28 of the Captive Insurance Companies Act (Alberta) (the "Captive Act") work together to allow Captives to reinsure third-party risks, provided that the following requirements are met:

1. There is an existing business relationship between the Captive's owner(s) and the third party(s);
2. All third-party insurance contracts are fronted by an insurer licensed in the jurisdiction of risk; and
3. The Captive maintains at least one contract that insures an eligible insured under section 27 of the Captive Act.

j. Alberta Superintendent of Insurance Issues Requirements for Motor Vehicle Warranty Contracts, Dealership Loyalty and Programs and Vehicle Protection Products

On December 19, 2024, the Alberta Superintendent published Interpretation Bulleting 05-2025 Motor vehicle warranty contracts, dealership loyalty programs and vehicle protection products (the "AB Bulletin"). The AB Bulletin describes how motor vehicle warranty contracts, motor vehicle dealership loyalty programs and motor vehicle protection products are considered insurance and in which circumstances they would not be considered insurance.

Motor Vehicle Warranty Products:

• Motor vehicle manufacturer warranties and extended warranties: The AB Bulletin notes that most motor vehicle manufacturers offer warranty protections on their vehicles and many offer extended warranties that can be purchased separately, however, such manufacturers' warranties are not insurance and instead are subject to the provisions of the Consumer Protection Act (Alberta). If the coverage includes any risk, peril, damage or loss beyond inherent deficiencies in the workmanship or materials arising from the production of the motor vehicle, such products are contracts of insurance.
• Third party extended motor vehicle warranties: This includes motor vehicle warranty contracts which are issued by a person (e.g., automotive dealer) other than the motor vehicle manufacturer or its wholly-owned subsidiary and these products are contracts of insurance. However, the AB Bulletin notes that warranty contracts issued by a person (e.g., automotive repairer) providing coverage solely for those inherent deficiencies in the workmanship arising from the person's service or repairs of a motor vehicle, are not considered insurance.

Motor Vehicle Dealership Loyalty Programs:

• The AB Bulletin describes these products as sold at dealerships in conjunction with the purchase, lease or finance of a new or used motor vehicle, typically as a membership fee. These products provide a dealership discount to consumers on a future replacement motor vehicle should an event occur that results in damage or total loss of the original motor vehicle. The AB Bulletin notes that since these products indemnify consumers for part of the cost of purchasing a replacement motor vehicle only on the happening of a certain risk or peril, such as theft or collision, this would be considered insurance. However, the AB Bulletin also notes that a debt waiver underwritten by the financing company is not insurance.

Ancillary Motor Vehicle Protection Products

• The AB Bulletin also notes the following products would be considered insurance:
  • Deductible reimbursement and/or monetary credits given in the event of loss, damage, or theft of a motor vehicle;
  • Non-manufacturer tire and rim warranties providing for tire and rim replacement;
  • Glass protection products promising to pay some or all of the cost of a windshield replacement;
  • Products intended to deter theft that include a promise to make a payment in the event of the theft and/or non-recovery of the motor vehicle (or part thereof), such as theft-deterrent etching or tagging and catalytic converter anti-theft devices;
  • Key fob replacement coverage; and
  • Payment for a motor vehicle rental provided in conjunction with a vehicle protection product that is insurance.
• The AB Bulletin notes that roadside service plans, or motor vehicle service plans which provide solely for planned maintenance or routine service of a motor vehicle, or minor repairs that are routine to the ownership of a motor vehicle (e.g. if the service/repair provided is for reasonable and expected wear and tear) are not considered insurance. For example, the following products would likely not be considered insurance:
  • Oil changes;
  • Windshield repairs;
  • Tire and rim repairs;
  • Wiper blade replacements;
  • Air filter replacements; and
  • Scuff, ding, chip, cut, tear, and scratch repairs (interior or exterior).

Regulatory Trends

a. CCIR Releases Report on the Fair Treatment of Customers by Canadian Insurers

On June 27, 2024, the CCIR released a report that provided insights into the governance and business culture in relation to the Fair Treatment of Customers (the "FTC Report"). The FTC Report is based on supervisory work conducted by CCIR members involving 40 insurers registered in the L&H and P&C sectors. The FTC Report highlighted observations in key areas such as FTC-related roles and responsibilities of the board of directors and senior management, codes of ethics or conduct, FTC policies and objectives, risk management and commercial practices that could adversely affect FTC and management information. The CCIR has stated that it expects all insurers to read the FTC Report, assess gaps in relation to regulators' expectations and determine what actions they need to take to make FTC a fundamental element of their governance and their business culture.

b. Proposed Regulatory Framework for Life and Health Managing General Agents in Ontario

In July 2024, the Ministry of Finance proposed certain legislative amendments to the Insurance Act (Ontario) (the "Act") and issued an accompanying consultation paper focusing on establishing a robust regulatory framework for Life and Health Managing General Agents ("L&H MGAs") in Ontario. On November 6, 2024, Bill 216, the Building Ontario For You Act (Budget Measures), 2024, received Royal Assent which established a new licensing regime for L&H MGAs. More recently on January 28, 2025, FSRA published Proposed Rule 2025-001 – Life and Health Insurance Managing General Agents which further prescribes the licensing requirements for L&H MGAs. FSRA is seeking feedback from stakeholders on the proposed rule until March 31, 2025.

The insurance industry's shift towards third-party distribution models, with MGAs now playing a central role and accounting for approximately 65% of all new individual life and health insurance premiums in Canada, has highlighted the need for updated regulations to address consumer protection and ensure a fair, competitive market. Ontario's move to regulate L&H MGAs under a category of "managing general agents" makes it the latest province to take this step, following Saskatchewan and New Brunswick, with other provinces also considering regulating L&H MGAs. This follows the proposed guidance on Life Insurance Agent & MGA Licensing Suitability issued in late-2023 by FSRA. Please refer to our article for more information on the proposed regulatory framework for L&H MGAs.

c. Alberta Announces Changes to Auto Insurance System

In November 2024, the government of Alberta announced the implementation of a "Care-First" auto insurance system in Alberta to take effect on January 1, 2027. The Care-First system would be the first privately delivered auto insurance system in Canada focused on providing improved medical, rehabilitation, and income support benefits for all Albertans injured in a collision, while continuing to hold at-fault drivers accountable through higher premiums. Albertans injured in a collision would be able to access these enhanced benefits without the need to sue. Legislation regarding the Care-First system is proposed to be released in the Spring of 2025 with the new system to be fully implemented by January 2027.

Other Developments That We Are Watching in 2025

• Climate Risks: On March 20, 2024, OSFI released updates to Guideline B-15: Climate Risk Management to ensure that the expectations for FRFIs in the Guideline's Annex 2-2 align with the International Sustainability Standards Board's final IFRS S2 Climate-related Disclosures standard. OSFI notes that this will streamline climate disclosures and promote transparency of climate-related risks. OSFI also released new Climate Risk Returns that will collect standardized climate-related data on emissions and exposures from FRFIs.
• Artificial Intelligence: On September 24, 2024, OSFI and the Federal Consumer Agency of Canada ("FCAC") released a joint report (the "Report") highlighting key risks to financial institutions associated with the use of artificial intelligence ("AI"). This Report, based on feedback from a voluntary AI questionnaire by FRFIs, offers insights into current AI adoption trends, key risks and mitigation best practices for Canadian FRFIs. The Report is part of OSFI's and FCAC's consideration of the evolving risks the use of AI may pose for financial institutions and their advocacy for responsible AI adoption. OSFI and the FCAC have seen AI become increasingly used by financial institutions in core functions like underwriting, claims management, algorithmic trading, and compliance monitoring. Insurers and deposit-taking institutions prioritize AI for fraud detection and cybersecurity, often involving third-party providers. Most institutions, especially smaller ones, are in the prototype stage for generative AI adoption, exploring large language models (commonly known as "LLMs") for internal use and customer engagement. For more details on the Report, please refer to our article here.
• FSRA Statement of Priorities for 2024-2025: FSRA released its statements of priorities for 2025-2026 which, among other things, sets out FSRA's priorities in the insurance sector, including the following:
• Implementing key reforms for the regulation of auto insurance rates and underwriting, including finalizing the Auto Insurance Rating and Underwriting Supervision Guidance, implementing a new principles-based, consumer-outcomes focused auto insurance rate and underwriting supervisory model and improving transparency and disclosure for consumers to increase awareness and product knowledge and support informed decision-making, with an emphasis on high insurer accountability for achieving these outcomes.
  • Supporting reforms of the auto insurance system, including implementing government-led and FSRA-led auto reform initiatives, issuing the Fraud Reporting Rule and Guidance (subject to approval by the Minister of Finance) and initiating development of the Fraud Reporting Service.
  • Supporting the fair treatment of P&C consumers by completing the implementation of a market conduct supervisory framework for P&C insurance that will better enable FSRA to identify and address priority areas for supervision.
  • Strengthening the market conduct regulation and supervision of intermediaries, including MGAs.
  • Strengthening protection of consumers who invest in segregated fund contracts by finalizing the Total Cost Reporting Rule for individual segregated fund contracts.

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