1 Legal framework
1.1 Which legislative and regulatory provisions govern the insurance sector in your jurisdiction?
In Canada, jurisdiction to regulate the insurance sector is shared between the federal government and provincial governments (there are 10 provinces and three territories in total, collectively referred to herein as the ‘provinces'). The province of Quebec is a French language civil law jurisdiction governed by the Civil Code of Quebec, in contrast to the other nine provinces, which are common law jurisdictions.
Generally, the Constitution Act, 1867 gives Canada's federal Parliament power over "trade and commerce" in Canada, which has been interpreted to include the supervision and prudential regulation of the insurance sector in Canada. Parliament also maintains exclusive jurisdiction over marine insurance, as it falls under the federal power over "navigation and shipping". In contrast, the power of provincial legislatures to regulate "property and civil rights in the Province" has been interpreted to include the regulation of insurance contracts and the business of insurance.
Canadian insurers may be:
- federally incorporated, in which case they are prudentially regulated at the federal level, by the federal Insurance Companies Act and by the superintendent of financial institutions through the Office of the Superintendent of Financial Institutions (OSFI), which is part of the federal Ministry of Finance's portfolio; or
- provincially incorporated, in which case they are prudentially regulated at the provincial level, by provincial legislation and by the relevant provincial financial services regulator.
The vast majority of insurers in Canada are incorporated federally. There is a small number of significant provincially incorporated companies, primarily in the province of Quebec, where the regulatory regime is similar to the federal regime.
The products and market conduct of both federally incorporated and provincially incorporated insurers are regulated at the provincial level, by provincial legislation and by the relevant provincial financial services regulator. All insurance intermediaries – agents, brokers and adjusters – are also regulated provincially. Intermediary qualification, licensing and market conduct requirements are set out in provincial statutes and regulatory and industry guidelines.
1.2 Which bilateral and multilateral instruments on insurance have effect in your jurisdiction?
There are no such instruments in Canada that are applicable in the insurance sector.
OSFI publishes guidelines, advisories, rulings and transaction instructions, discussed in more detail in question 1.3, all of which are compulsory in practice. The Canadian Life and Health Insurance Association (which counts 99% of Canada's life and health insurance companies among its members) issues voluntary guidelines on various life and health insurance topics that are closely adhered to by its members as though they were mandatory, although they do not have the force of law or regulation. Some provincial regulators or licensing bodies issue codes of conduct or other rules that are generally adhered to by insurers and intermediaries operating in those provinces.
1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?
Federally, OSFI is focused on the safety and soundness of Canada's financial sector and is responsible for enforcing the laws and regulations applicable to federally incorporated insurance companies. OSFI regulates by articulating its expectations, which are set out in guidelines, advisories, rulings and transaction instructions; by interpreting legislation and regulations; and by providing regulatory approvals for certain types of transactions. Although OSFI's expectations are often worded in a non-compulsory manner, insurers generally treat OSFI's expectations as compulsory rules, since OSFI retains broad discretion under the Insurance Companies Act to apply the regulations and the power to enforce them. OSFI also contributes to new accounting, auditing and actuarial standards. Under the Insurance Companies Act, OSFI also has the power to make orders that have the force of law.
At the provincial level, each jurisdiction has its own financial services regulator, which may be the provincial department of finance or justice, or a dedicated insurance or financial services commission. Provincial regulators vary significantly in terms of size, sophistication and activism. Some provinces have a licensing body that is separate from the supervisory regulator, and such bodies tend to be more rules-based and administrative in their functions and approach.
1.4 What is the regulators' general approach in regulating the insurance sector?
All insurance regulators in Canada aim to ensure the safety and soundness of Canada's insurance sector while ensuring public confidence in insurance institutions and other stakeholders. OSFI's overall goal is to balance competitiveness with financial stability and international standards with Canadian market realities. OSFI's general approach in regulating the Canadian insurance sector is risk and principles based, to reflect the nature, size, complexity and risk profile of an institution. OSFI generally views financial institutions as needing to take reasonable risks and compete effectively both at home and abroad, while at the same time safeguarding the interests of policyholders and beneficiaries. The provincial insurance regulators are generally focused on consumer protection and promoting the interests of the public while supervising the activities of provincially incorporated insurers and insurance intermediaries.
2 Insurance contracts
2.1 What are the main types of insurance available in your jurisdiction?
Both federal and provincial laws contain specific classifications of insurance, which are not entirely harmonised across Canada. The main types of insurance available in Canada include accident and sickness, aircraft, automobile, boiler and machinery, credit, credit protection, fidelity, hail, legal expenses, liability, life, marine, mortgage, property, surety and title.
2.2 Are all insurance contracts regulated? What terms do they typically include?
Yes, insurance contracts made in Canada are regulated by the insurance statute of the province in which the contract is concluded, and generally by the laws of that province and the federal laws of Canada applicable therein.
Outside of automobile insurance, there are no prescribed forms for insurance contracts in Canada. Insurance contracts may be issued as standard form or manuscript (customised) documents. Insurance contracts generally include a summary of coverage, insuring agreements, statutory conditions, policy conditions and signatures of the insurer and insured. In all Canadian jurisdictions, statutory conditions – or general conditions, as they are known in Quebec – are required by provincial insurance legislation for policies of automobile, accident and sickness and fire insurance policies.
2.3 What are the formal and documentary requirements for conclusion of an insurance contract?
In Canadian common law jurisdictions, all valid contracts require an agreement consisting of offer and acceptance, consideration, intent to form a legal contract, legal capacity to contract and legality of purpose. In Quebec, all valid contracts require consent, capacity to contract, cause of contract and object of contract.
Based on legislative and common law definitions of ‘insurance', the fundamental elements of an insurance contract are as follows:
- an undertaking of one person;
- to indemnify another person;
- for an agreed consideration;
- from a loss or liability in respect of an event;
- the happening of which is uncertain.
2.4 What are the procedural requirements for conclusion of an insurance contract?
Insurers generally require policies to be signed by the insurer and the policyholder. Policies may be signed on behalf of the insurer by those with authority to bind the insurer, such as underwriting personnel or an agent or broker.
Most Canadian jurisdictions have e-commerce legislation that allows for contracts, including insurance contracts, to be signed electronically. Even in the absence of a legal barrier or restriction, the adoption of electronic documents and signatures varies among the industry. The legislation relating to the ability to make life insurance beneficiary designations electronically varies significantly among the provinces, with some having recently adopted legislation to specifically allow electronic beneficiary designations and others allowing it only in specific circumstances. Some provinces have introduced provisions allowing for electronic proof of mandatory auto insurance, while others still require hard copies to be provided.
Group insureds are typically issued a certificate of insurance evidencing their coverage under the applicable insurance policy. Delivery of a group certificate is a statutory requirement in the case of group health, creditor or accident and sickness insurance, and is standard industry practice for other types of group insurance.
2.5 What are the respective obligations and liabilities of insurer and insured, both on concluding an insurance contract and during its term? What are the consequences of any breach?
The common law principle of utmost good faith requires that the insured disclose all material facts that might affect the insurer's decision to accept the particular risks posed by the insured. By the same token, the insurer owes a duty to the insured in exchange for accepting premiums from the insured to remain solvent and to administer claims in an honest and timely manner. In general, if the insured makes a misrepresentation or omits a material fact either before or after the policy is issued, the policy is voidable at the insurer's option. The notable exception is that, in the case of life and accident and sickness insurance policies, provincial legislation provides ‘incontestability' provisions that protect the insured. Incontestability provisions provide that in the absence of fraud, the policy generally cannot be voided for misrepresentation or non-disclosure by the insured where the policy has been in force for a period of two years. Also, in most provinces, legislation provides that where the policy has been delivered, the contract is as binding on the insurer as if the premium had been paid, although it has not in fact been paid.
3 Making a claim
3.1 What are the formal and documentary requirements for making a claim?
There are no formal requirements prescribed by law in Canada. The requirements for making a claim are set out in the terms of the relevant insurance policy. There are usually time limits from the date of the loss or event in which a claim must be filed, which are set out in the terms of the policy. The insurer may require particular claim forms to be submitted by the insured and may require particular supporting documents to evidence the information required by the insurer. In making a claim, consumers may interact with an insurer, insurance broker, insurance agent, insurance representative or claims adjuster, as the case may be. For example, a life insurer may require a certificate of death to support a life insurance claim, and an accident report may be required to support an automobile insurance claim. In some cases, insurers will conduct additional investigations into insurance claims and additional supporting documents may be required in connection with those investigations.
3.2 What are the procedural requirements for making a claim?
There are no procedural requirements prescribed by law in Canada. Generally, the insured must notify the insurer of the loss by reporting the loss to its broker or agent, or directly to the insurer through the insurer's call centre or online reporting tool. A claims handler will then obtain key information on behalf of the insurer from the insured in order to make an initial decision on whether the claim is covered under the relevant policy. This information will include identifying the policy and the basic features of its coverage, the insured and/or beneficiary and details about the cause of loss. If the information obtained suggests that the loss may be covered, the insurer will generally assign a loss adjuster to the claim to verify the information obtained and the policy coverage, and, if necessary, further investigate the loss and negotiate, deny or settle the claim.
3.3 On what grounds can the claim be denied? How can the insured challenge the denial of claim?
A claim may be denied based on the particulars of coverage in the policy. To challenge the denial of a claim, the insured may initiate an informal complaint or formal legal action against the insurer.
3.4 How can third parties make a claim?
In respect of certain types of insurance, the policy may provide for the right of a third party to make a claim directly against the insurer (eg, bailee's insurance or inland marine insurance). In respect of liability or other claims by third parties where the policy does not provide for claims made by third parties directly, the third party must initiate a legal action against the insured.
4 Form and structure of insurers
4.1 What types of insurance companies are typically found in your jurisdiction?
Insurance companies in Canada may be federally or provincially organised corporations (whether Canadian or foreign owned) or may be foreign branches, fraternal benefit societies or mutual companies.
Insurance companies in Canada are classified as either:
- life insurance companies, which offer life insurance, annuities and health (accident and sickness) insurance; or
- property and casualty insurance companies (also known as general insurers), which offer a wide range of insurance products including home, automobile and business insurance.
In Canada, unlike some other jurisdictions, an insurance company may be licensed only as a life company or a property and casualty company, but not both.
The Canadian life insurance industry is highly concentrated and is led by three large conglomerates, followed by a number of mid-sized or smaller life insurers. The Canadian property and casualty insurance industry is much more fragmented, with more than double the number of insurers compared to life and with only the top three insurers holding more than a 5% market share.
Approximately 100 foreign life and property and casualty insurers currently operate in Canada on a branch basis. A branch is not a separate legal entity from its foreign head office and therefore is not subject to the same requirements as a Canadian insurer. Instead, a branch must appoint a chief agent to oversee the management of the branch, including matters of corporate governance.
4.2 How are these insurance companies typically structured and funded?
In general, there are four types of insurance company structures and funding arrangements in Canada:
- for-profit insurers, including stock companies and Lloyd's underwriters;
- cooperative associations operating for the benefit of their members, including mutual companies, reciprocal insurance exchanges, mutual benefit societies and fraternal benefit societies;
- government insurance, including crown corporations, some provincial automobile insurance plans, provincial workers' compensation schemes, Employment Insurance and the Canada Pension Plan; and
- captive insurance companies, where the policyholder(s) control the insurance functions of the insurer and use the insurer as a means of financing risk.
4.3 Are there any restrictions on foreign ownership of insurance companies?
There are restraints on insurance company ownership generally (set out in Part VII of the Insurance Companies Act for federal companies), but there are no restrictions on foreign ownership specifically.
No person, or entity controlled by a person, may hold or increase its holding in a federally incorporated insurance company, such that it would acquire greater than a 10% interest in the company, without the approval of the Canadian minister of finance. This rule also applies to provincial companies incorporated under British Columbia legislation, in which case approval must be obtained from the British Columbia minister of financial institutions.
5.1 What authorisations are required to provide insurance services in your jurisdiction? What activities do they cover?
Federally regulated insurance companies require an authorisation from the minister of finance and the superintendent of financial institutions to conduct business in Canada. A federal insurer is authorised to insure (or reinsure), in Canada, risks that fall within a class of insurance that is specified in its authorisation order. The Office of the Superintendent of Financial Institutions (OSFI) is responsible for regulating and administering the application process, which is extensive and time consuming.
The process to establish a foreign branch is also extensive and time consuming, although somewhat less so. A branch is authorised to insure (or reinsure), in Canada, risks that fall within a class of insurance that is specified in its authorisation order. Like federal insurers, approvals are required from the superintendent and the minister to establish a branch and the application is made through OSFI.
Provincially organised insurance companies must obtain authorisation to carry on business from the provincial regulator in the province in which they have organised, and are generally subject to similar requirements to those set out by OSFI.
All insurers (federal, provincial and branches), must obtain authorisation from the insurance regulator in each province in which they intend to conduct business in the form of a provincial insurance licence, which authorises the insurer to conclude contracts of insurance in the jurisdiction in respect of one or more particular classes of insurance.
Insurance intermediaries fall under provincial jurisdiction. Provincial insurance regulators supervise insurance service providers, including insurance agents, brokers and adjusters. This is accomplished through provincial insurance legislation and regulations and insurance regulators that are organised as either government agencies or self-regulating bodies.
5.2 What requirements must be satisfied to obtain authorisation?
In order to obtain authorisation, federal insurers and foreign branches are required to submit to OSFI their governing documents, proof of required capitalisation and proof of compliance with the applicable requirements of the Insurance Companies Act and of OSFI. In particular, applicants are required to submit:
- information on their ownership and financial strength;
- a detailed three-year business plan;
- management information;
- risk management analyses;
- information on the board of directors;
- internal audit methodologies;
- compliance management information; and
- descriptions of IT systems and structure.
For the incorporation of a provincial insurer, provincial regulators have requirements similar to OSFI's, although the level of sophistication and available resources of the provincial regulators vary significantly. Some may direct applicants to apply at the federal level.
Provincial insurance regulators require insurance intermediaries to:
- obtain certain qualification requirements;
- meet licensing requirements that depend on the type of insurance services provided;
- maintain operating requirements in the conduct of their business;
- maintain licences in good standing; and
- renew licences upon expiry.
5.3 What is the procedure for obtaining authorisation? How long does this typically take?
The procedures for incorporating a new federal insurer or foreign branch are governed by the Insurance Companies Act and OSFI, and are set out in detail respectively in OSFI's Guide for Incorporating Federally Regulated Insurance Companies and its Transaction Instructions on Establishment of a Branch by a Foreign Insurer.
Typically, establishing a federal insurer will take at least 12 to 18 months from the initial application to completion, and establishing a foreign branch will generally take nine to 15 months from the initial application to completion. The length of the process is heavily dependent on the quality of the initial application and the ability of the applicant to respond to OSFI information requests in a timely manner.
The process for incorporating a new provincial insurer will vary significantly by province, with the procedure and timing in the larger more sophisticated jurisdictions (eg, Ontario, Quebec, British Columbia) likely to be very similar to the federal OSFI process.
Obtaining a provincial licence to carry on business – for both insurers and intermediaries – typically takes one to three months, depending on the type of licence and the jurisdiction.
6 Regulatory capital and liquidity
6.1 What minimum capital requirements apply to insurance companies in your jurisdiction?
For federal insurers, the Office of the Superintendent of Financial Institutions (OSFI) maintains two minimum capital requirements guidelines: the Minimum Capital Test (MCT) for property and casualty insurers, and the Life Insurance Capital Adequacy Test (LICAT) for life insurers. In addition, OSFI requires federal insurers to meet the requirements of its Guideline A-4: Internal Target Capital Ratio for Insurance Companies.
Foreign branches must maintain in Canada an adequate margin of assets over liabilities in respect of their insurance business in Canada. Such assets must be vested in trust and are not available to be employed for other purposes, such as to be pledged as collateral.
Notwithstanding that federal insurers and foreign branches meet the appropriate standards under the MCT or LICAT, the superintendent of financial institutions has the power under the Insurance Companies Act to direct a federal insurer to increase its capital or a foreign branch to increase the margin of assets in Canada over liabilities in Canada, or to provide additional liquidity in the forms and the amounts that OSFI requires.
With respect to provincially incorporated companies, the capital requirements are similar to those used by OSFI, but in most cases are less robust than the OSFI requirements.
6.2 What liquidity requirements apply to insurance companies in your jurisdiction?
Insurance companies are expected to have adequate and appropriate forms of liquidity, although there is no distinct set of liquidity requirements in the Insurance Companies Act or OSFI guidance, or under the provincial regimes.
7 Supervision of insurance groups
7.1 What requirements apply with regard to the supervision of insurance groups in your jurisdiction?
The supervision of Canadian insurance companies is conducted on a consolidated basis, which involves an assessment of all material entities (including all subsidiaries, branches and joint ventures), both in Canada and internationally. The Office of the Superintendent of Financial Institutions or the applicable provincial regulator will use information available from other regulators as appropriate.
8 Reporting, governance and risk management
8.1 What key disclosure requirements apply to insurance companies in your jurisdiction?
The applicable disclosure requirements are part of the reporting requirements discussed at question 8.2. Disclosure requirements for life insurance companies and property and casualty insurance companies are also maintained in the appropriate Office of the Superintendent of Financial Institutions (OSFI) Annual Disclosures Guidelines. These disclosure requirements are generally meant to supplement the disclosures required by International Financial Reporting Standards.
Provincial requirements are similar to OSFI's, but in most cases are less robust than the OSFI requirements.
8.2 What key reporting requirements apply to insurance companies in your jurisdiction?
Federal insurers are expected to file certain annual and quarterly financial reports with OSFI and certain annual and periodic corporate reports with OSFI, including upon certain corporate changes. Annual financial reporting for insurance companies includes the Minimum Capital Test or the Life Insurance Capital Adequacy Test, as applicable, as well as an annual auditor's report. The annual corporate return required by OSFI requires the insurance company to certify that all of its corporate information on file with OSFI has been reviewed and updated. Branch reporting requirements are similar to those of federal insurers, with certain modifications. Provincial requirements are similar to OSFI's, but in most cases are less robust than the OSFI requirements.
8.3 What key governance requirements apply to insurance companies in your jurisdiction?
OSFI expects that federal insurers have robust governance structures and processes that provide appropriate oversight of their risk-taking activities. OSFI's Corporate Governance Guideline and detailed governance assessments provide guidance to insurance companies on their approaches to governance. Boards of federal insurers are expected to be strong, diverse and knowledgeable, and operate in a culture where risks and challenges are clearly communicated. OSFI also maintains oversight of the risk governance practices and processes of federal insurers, taking into account their respective nature, complexity, strategies and risk profiles.
The OSFI Corporate Governance Guideline does not apply to foreign branches. Because a branch is not a separate legal entity from its foreign head office, it is not subject to the same governance requirements as a Canadian insurer. Instead, the chief agent of the branch oversees matters of corporate governance and compliance with OSFI's guidelines, which is described in greater detail in OSFI's Guideline: Role of the Chief Agent and Record Keeping Requirements.
Provincial requirements are similar to OSFI's, but in most cases are less robust than the OSFI requirements.
8.4 What key risk management requirements apply to insurance companies in your jurisdiction?
In general, OSFI's approach to risk management and governance is primarily principles based. Federal insurers are expected to establish a risk appetite framework that guides the company's risk-taking activities, taking into account its risk profile to address material risks and risks to the reputation of the company. The company's risk appetite framework should be consistent with its business model, overall philosophy, short-term and long-term strategy and corresponding risk mitigation.
Pursuant to OSFI's Corporate Governance Guideline, boards of federal insurers must have a risk committee. In addition, insurance companies are expected to engage in own risk and solvency assessments (ORSAs), which both are part of sound business practices and act as compliance tools. The ORSA process is described in greater detail in OSFI's Own Risk and Solvency Assessment Guideline. ORSA represents an insurer's own view of its risks and solvency requirements. OSFI expects every insurance company to use processes designed by management and overseen by the board of directors that reflect the nature, scale and complexity of its own risks. ORSA allows an insurance company to self-assess whether its internal capital position is adequate, given its risk profile both at the time of the ORSA and in the future.
OSFI's expectations for the management of operational risk are set out in its Guideline: Operational Risk Management.
Branch reporting requirements are similar to those of federal insurers, with certain modifications. Provincial requirements are similar to OSFI's, but in most cases are less robust than the OSFI requirements.
9 Senior management
9.1 What requirements apply with regard to the management structure of insurance companies in your jurisdiction?
The management structure expectations for federal insurers are set out in the Office of the Superintendent of Financial Institutions' (OSFI) Corporate Governance Guideline. This guideline outlines the role of the board of directors and senior management, oversight functions and methodologies for assessing board effectiveness. The Corporate Governance Guideline sets out certain requirements for board competencies and oversight functions, as well as requiring the maintenance of specific board committees. With respect to foreign branches, OSFI expects the chief agent to oversee the management of the branch, including matters of corporate governance and compliance with OSFI's expectations, which do not include those set out in the Corporate Governance Guideline, but are described in greater detail in OSFI's Guideline: Role of the Chief Agent and Record Keeping Requirements.
Provincial requirements are similar to OSFI's, but in most cases are less robust than the OSFI requirements.
9.2 How are directors and senior executives appointed and removed? What selection criteria apply in this regard?
The election of directors and officers of federal insurers is governed by Part VI, Division II of the Insurance Companies Act. OSFI encourages federal insurers to maintain policies and procedures that allow them to maintain a suitable, competent and diverse board of directors. In addition, OSFI's Guideline: Background Checks on Directors and Senior Management of Federally Regulated Entities outlines a number of principles to assist federal insurers in establishing policies and procedures regarding the conduct of assessments of their ‘responsible persons', including the board of directors and senior management, over which OSFI retains oversight through its supervisory reviews. Foreign branches do not have directors, but OSFI's guidance applies to the chief agent and branch management, with necessary modifications. Provincial requirements are similar to OSFI's.
9.3 What are the legal duties of directors and senior executives of insurance companies?
In Canada, directors have a fiduciary duty owed to the company. The Supreme Court of Canada has held that directors do not owe a fiduciary duty to shareholders, creditors or any other stakeholder of the company. Directors of federal insurance companies have specific duties under Part VI, Division II of the Insurance Companies Act. Directors and officers of insurance companies have a duty to act honestly and in good faith with a view to the best interests of the company, and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Every director, officer and employee of a federal insurance company has a duty to comply with the Insurance Companies Act, its regulations, the company's incorporating instrument and the bylaws of the company. Foreign branches do not have directors. Provincial law is similar to the federal law in this regard.
9.4 How is executive compensation regulated in your jurisdiction?
Executive compensation is not regulated in Canada.
10 Change of control and transfers of insurance companies
10.1 How are the assets and liabilities of insurance companies typically transferred in your jurisdiction?
In Canada, asset and liability transfers are generally a matter of contract, as opposed to court or regulatory process.
Where a Canadian insurer or branch seeks to transfer policy liabilities to another insurer, in the absence of applicable foreign court and/or regulatory approval, it may do so only with policyholder consent. In such case, the transferee insurer replaces the transferring insurer as a party to the policies that are the subject of the transaction and the latter is fully discharged from all obligations under these policies, in accordance with the terms and conditions of the transfer instrument.
Policy liabilities may also be transferred by assumption reinsurance (a Canadian statutory process) where transfer with consent is not feasible, but in this case the transferor will retain residual legal liability for the transferred liabilities. In an assumption reinsurance transaction, the reinsurer agrees to assume the discharge of the obligations that the insurer/cedant owes under the transferring policies, including the discharge of the financial obligations and the policy administration functions. Following an assumption reinsurance transaction, the reinsurer becomes directly liable to the subject insureds, which then pay premiums to the reinsurer. The reinsurer then assumes the ongoing policy servicing obligations and the payment of claims. Assumption reinsurance allows the transferring insurer (cedant) to remove the policy liabilities from its books for accounting and regulatory purposes; however, after the conclusion of an assumption reinsurance transaction, the cedant retains its prior legal liability to the policyholders until such time that its liability terminates in accordance with the terms of the policy or is extinguished by statute or otherwise by operation of law.
The approval of the superintendent of financial institutions or the federal minister of finance, or the relevant provincial regulator, is required, depending on the proportion of policy liabilities being transferred. Such approvals typically take three to six months to obtain.
10.2 What requirements must be met in the event of a change of control?
Acquiring a ‘significant interest' (ie, more than 10% of any class of shares) in, or ‘control' or ‘control in fact' of, a federal insurer – including through a merger, amalgamation or reorganisation – requires the prior approval of the federal minister of finance under the Insurance Companies Act. The Office of the Superintendent of Financial Institutions' Transaction Instructions on the Acquisition or Increase of a Significant Interest in, and/or Acquisition of Control of, a Federally Regulated Entity set out the requirements for ministerial approval in these circumstances, which include information requirements relating to the business and ownership of the applicant and the effect of the proposed transaction on the subject insurance company. Such approvals typically take three to six months to obtain. In addition, there may be provincial notification requirements in the event of a change of control.
11 Consumer protection
11.1 What requirements must insurance companies comply with to protect consumers in your jurisdiction?
Consumer protection is the central focus of the regulation of the insurance industry in Canada, both at the federal level and at the provincial level. From a federal perspective, the Office of the Superintendent of Financial Institutions (OSFI) is focused on the soundness and safety of the insurance industry, such that policyholders may rely on their insurance. Consumer protection is evident throughout the provincial regulation of insurance activities in Canada, including ensuring public confidence in and regulating the market conduct of insurance agents, brokers and adjusters, and providing for minimum protections in insurance contracts. Provincial insurance regulators are also concerned with the availability of insurance to customers, particularly with mandatory automobile insurance.
11.2 What other measures has the state implemented to protect consumers in the insurance sector?
Provincial insurance regulators and OSFI require insurers to maintain a consumer dispute resolution process, which is overseen by the insurer's complaints liaison officer or ombudsman. Some Canadian jurisdictions have an independent ombudsman that responds directly to consumer questions and complaints about insurance. Every life insurance company authorised to sell insurance policies in Canada is required, by the federal, provincial regulators, to become a member of Assuris – a not-for-profit life insurance benefit protection scheme which becomes available in the event of the insolvency of a life insurer. Similarly, the Property and Casualty Insurance Compensation Corporation is an industry-led, not-for-profit initiative to protect eligible property and casualty policyholders from undue financial loss in the event of the insolvency of a member company.
12 Data security and cybersecurity
12.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have for insurance companies?
The Personal Information Protection and Electronic Documents Act (PIPEDA) is federal legislation which sets out the rules on how private sector organisations collect, use and disclose personal information with respect to their commercial activities. Where a province has enacted substantially similar legislation, that legislation will be applicable in place of PIPEDA within that province, other than for federally regulated organisations. Alberta, British Columbia and Quebec have substantially similar legislation. PIPEDA is anchored in the principle of consent, but provides that an organisation may collect, use or disclose personal information only for purposes that a reasonable person would consider appropriate in the circumstances. PIPEDA sets out exemptions from the consent requirement in certain circumstances and sets out individual access rights. It also provides for breach notification to both the regulator and affected individuals where it is reasonable to believe that a breach of the security safeguards protecting personal information poses a real risk of significant harm. It also requires organisations to keep and to maintain a record of every breach of security safeguards involving personal information under its control. Organisations are also mandated to comply with the following principles:
- identifying purposes;
- limiting collection;
- limiting use, disclosure and retention;
- individual access; and
- challenging compliance.
Ontario's Personal Health Information Protection Act (PHIPA), Manitoba's The Personal Health Information Act, New Brunswick's Personal Health Information Privacy and Access Act and Newfoundland and Labrador's Personal Health Information Act may also be applicable to insurers. For example, under Ontario's PHIPA, when an insurance company receives personal health information from a health information custodian, the insurance company may, in general, use or disclose information only for the authorised purpose for which the information was disclosed or for the purpose of carrying out a statutory or legal duty.
12.2 What is the applicable cybersecurity regime in your jurisdiction and what specific implications does this have for insurance companies?
PIPEDA sets out the requirements for private sector commercial enterprises with respect to cybersecurity. The accountability principle provides that an organisation is responsible for the personal information under its control, including information that has been transferred to a third party for processing, and must implement procedures to protect personal information. The safeguards principle provides that personal information shall be protected by security safeguards appropriate to the sensitivity of the information in order to protect the information against loss or theft, as well as unauthorised access, disclosure, copying, use or modification. This principle notes that methods of protection should include physical measures, organisational measures and technological measures. As set out above, PIPEDA has requirements related to breach notification and record keeping. An organisation that knowingly fails to report a breach to the regulator or affected individual or maintain breach records commits an offence and could be liable for a fine of up to C$100,000.
The Office of the Superintendent of Financial Institutions' (OSFI) Technology and Cyber Security Incident Reporting Advisory sets out the criteria for reporting incidents to OSFI. OSFI has also published its Cyber Security Self-Assessment Guidance, which federally regulated financial institutions are encouraged to use to assess their current level of preparedness, and to develop and maintain effective security practices.
The federal government has also developed a National Cyber Security Strategy and established the Canadian Centre for Cyber Security. It also announced plans to introduce a new critical cyber systems framework through the adoption of new legislation and the amending of existing legislation.
13 Financial crime
13.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction and what specific implications do these have for insurance companies?
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act is the primary legislation dealing with the obligations of reporting entities with respect to money laundering and terrorist financing. It sets out specific measures to detect and deter money laundering and the financing of terrorist activities, and to facilitate the investigation and prosecution of money laundering and terrorist activity financing offences.
The act also established the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), which is Canada's financial intelligence unit. Life insurance companies, brokers and agents must fulfil specific obligations under the act and its associated regulations. A ‘life insurance company' is defined as a life company or a foreign life company to which the Insurance Companies Act applies or a life insurance company regulated by a provincial act. A ‘life insurance broker or agent' is defined as an individual or entity that is registered or licensed under provincial legislation to carry on the business of arranging contracts of life insurance. Obligations under the act include the following:
- Compliance programme – implementing a compliance programme, including appointing a compliance officer, developing policies and procedures, applying and documenting a risk assessment, providing a training programme and completing a review of the compliance programme every two years;
- Know your client – verifying the identity of clients for certain activities and transactions through specific methods as well as complying with ongoing monitoring, beneficial ownership and third-party determination requirements, and the obligation to take reasonable measures to determine whether a person is a politically exposed person or a head of an international organisation if a person makes a lump-sum payment of C$100,000 or more towards an immediate or deferred annuity or life insurance policy, on his or her own behalf or at the instruction of someone else;
- reporting – reporting to FINTRAC on suspicious transactions, terrorist property and large cash transactions; and
- Record keeping – keeping certain transaction and client identification records.
14.1 What specific challenges or concerns does the insurance sector present from a competition perspective? Are there any pro-competition measures that are targeted specifically at insurance companies?
In Canada, competition is regulated by the federal government under the Competition Act, which is administered by the Competition Bureau. The Competition Act contains both civil and criminal provisions and regulates the conduct of most business in Canada, including the insurance industry, with very limited exceptions. The Competition Act prohibits certain anti-competitive conduct such as refusal to deal, price maintenance and tied selling, and requires notifications in respect of certain transactions or approvals in the case of certain mergers. There are no particular challenges or pro-competition measures for insurance companies in Canada.
15 Restructuring and insolvency
15.1 What provisions govern insolvency in your jurisdiction and what specific implications do these have for insurance companies?
Insolvency falls under federal jurisdiction in Canada and the insolvency of insurance companies is governed by the federal Winding-up and Restructuring Act (WURA). WURA applies to federally and provincially incorporated insurers, as well as foreign branches. WURA allows a court to make a winding-up order, with the option to appoint a liquidator, in respect of an insolvent insurer, including in the case where the superintendent of financial institutions has taken control of the insurer.
The Insurance Companies Act also provides a wide range of discretionary intervention powers that allow the Office of the Superintendent of Financial Institutions (OSFI) to intervene to address any concerns that should arise with an insurance company. In this regard, OSFI maintains Guides to Intervention for life insurance companies and property and casualty insurance companies.
16 Trends and predictions
16.1 How would you describe the current insurance landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
The Canadian insurance industry continues to evolve in the face of emerging technology and digitisation. We expect an increase in the regulation of financial technology, particularly with respect to the online distribution of insurance, and an increased focus on technology risks, including cyber risk. Industry awaits news from the Office of the Superintendent of Financial Institutions (OSFI) in connection with its review of reinsurance requirements, with the expectation that changes to OSFI's reinsurance framework will be released within the next year. The industry and OSFI are working towards the implementation of International Financial Reporting Standard 17 – Insurance Contracts, and await any developments in that regard from the International Accounting Standards Board. This year will also be marked by the introduction of two new provincial insurance regulators in two of the top three markets in Canada: the Financial Services Regulatory Authority in Ontario and the Financial Services Authority in British Columbia. Quebec, the other top Canadian market, has seen a near-complete overhaul of its insurance legislation this year. The industry is following the developments from the insurance regulators in these jurisdictions closely.
17 Tips and traps
17.1 What are your top tips for insurance companies operating in your jurisdiction and what potential sticking points would you highlight?
It is generally preferable to be transparent with the Office of the Superintendent of Financial Institutions (OSFI), and OSFI's ‘expectations' are better understood as minimum requirements to operate an insurance company in Canada. In comparison to insurance regulators in other jurisdictions, OSFI is generally active in its supervision and conservative in its approach. Insurance companies would be well advised to foster close relationships with their OSFI relationship managers and to demonstrate a prudent and policyholder-focused approach to their business.
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