What new customer treatment guidance could mean for brokers

There’s likely to be more paperwork, more disclosure and possibly increased instances of insurers calling out concerning behaviour by brokers distributing their products.

That’s the upshot of a new report on customer treatment from the Canadian Council of Insurance Regulators (CCIR) and Canadian Insurance Services Regulatory Organizations (CISRO). Their guidance applies to insurers and intermediaries (i.e. brokers and agents), but not to insurers that only engage in reinsurance, the document notes.

To put the customer first, the new guidance calls on insurers and brokers/agents to give customers clear, non-misleading information at the point of sale and afterwards to ensure clients can make informed decisions.

When interacting with regulators, insurers and brokers/agents will be expected to:

• Make their strategies, and policies and procedures for fair treatment of customers available
• Promptly tell regulators if they’re likely to be harmed by a major operational incident that could “jeopardize the interests or rights of customers” or the reputation of a broker/agent.

The guidance also calls on both insurers and brokers/agents to “establish and implement policies and procedures on fair treatment of customers, as integral parts of their business culture.” That calling out of business culture is consistent with an emerging trend whereby regulators are exploring guidelines beyond the scope of financial wrongdoing.

During 2022’s National Insurance Conference of Canada, presenters described efforts by the Office of the Superintendent of Financial Institutions (OSFI) to establish guidance for business culture metrics as “a solution in search of a problem.”

During that 2022 conference, Fasken partner Koker Christensen said OSFI’s regulatory initiative around culture is part of a broader effort by global financial regulators to recognize more intangible influences on an organization’s financial results. “The focus on non-financial risks is kind of a mega-trend in insurance regulation,” he said at the time.

Dispute resolution and customer fairness

Other guidance from CCIR and CISRO calls on the industry to ensure customers get relevant advice and that complaints and disputes be resolved fairly and quickly.

Specifically, it mentions claims handling and says customers must be informed about formalities, procedures and timeframes – and get timely information about claims status.

“Claim-determinative factors such as depreciations, discounting or negligence, if applicable, are [to be] illustrated and explained in understandable language to claimants. The same applies when claims are denied in whole or in part,” the report says.

The guidance also calls upon insurers and brokers/agents to make sure conflicts of interest stemming from things like compensation structures, performance targets or inducements are managed to produce outcomes that favour customers.

Insurers are also expected to report if brokers/agents with whom they work with may not be suitable or properly authorized. This may include:

• Identifying if certain brokers/agents or particular issues are subject to regular or frequent complaints, and
• Reporting recurring issues that are relevant to the regulator’s assessment of those brokers/agents.

What’s more, CCIR and CISRO expect insurers to “have effective systems and controls in place and communicate clear strategies for selecting and managing arrangements with intermediaries as part of their overall distribution plan [and] to assess…that they are authorized and have the appropriate knowledge and ability to conduct insurance business and have appropriate governance policies and procedures with respect to fair treatment of customers.”

Product particulars

In terms of product design, the new report instructs insurers to craft product development processes that provide “for a thorough assessment of the main characteristics of a new product and of the related disclosure documents by every appropriate department of the insurer.”

Meanwhile brokers/agents are expected to give insurers information on what types of customers they’re selling the products to, and whether they meet the target market’s needs. This data, the report says, will let insurers assess product viability and “revise the product, when needed.” Similar requirements are set for product distribution.

Likewise, CSIO and CISRO say they expect customer disclosures to be “be up to date and provided in a clear, fair and not misleading way, using plain language wherever possible [and] be accessible in written format, on paper or another durable medium, including electronic mediums.”

Brokers and agents are expected to disclose which types of business they’re authorized to conduct, and clarify relationships with the insurers with whom they contract. This includes disclosing whether the products they offer are from a “full range of insurers, from a limited range or from an exclusive Insurer.”

Feature image courtesy of iStock/AlexeyGorka