Quebec regulator, the Autorité des marchés financiers (AMF), sparked an outcry last year by endorsing online insurance sales without representative involvement. At the Insurance and Investment Convention held in Montreal in late 2015, however, AMF executives underlined that any advice associated with a sale must be given by a certified representative.

AMF CEO Louis Morisset discussed the representative’s role at the convention held in November. “The Internet will not replace advice. This new business model will let the industry develop niches that highlight the value of advice,” he said.

Other industrial sectors have had to change their business practices, he observed. “(Travel) agents who once sold Montreal to Fort Lauderdale trips now sell excursions to China or a hunting expedition in northern Quebec. Agents have not disappeared, they have just reinvented themselves.” The Internet is an additional tool to expand insurance product distribution.

Securities and robo-advisors

Eric Stevenson, superintendent, Client Services and Distribution Oversight at the AMF, has been closely following online insurance sales since 2010, and says the market has greatly evolved over the last five years. If direct online insurance sales are permitted, as soon as a client asks for advice a certified representative must step in, Stevenson says. “There is no question of machines giving advice. We will see what the government decides, but our orientations are not along those lines,” he says.

In fact, it is easy to buy stocks without advice. Stevenson explains why: “With securities you can buy stocks online yourself with few formalities, at your full discretion. There is no advice here, and exemptions were given at the time to authorize these transactions for discount subsidiaries.”

The Canadian Securities Administrators (CSA), whose board of directors Morisset chairs, recently published an opinion on robo-advisors. “There may be online transmission. But any securities advice must be provided by a certified representative, especially if you are playing with your portfolio,” he says.  Financial security advisors can use the Internet to offer advice, Stevenson adds. This procedure then becomes a communication mode, like chat.

In insurance, the regulator must clearly limit cases where “consumers find themselves in serious difficulty.” If it were to draw this line imprudently, the AMF might have to face the consequences 10 years later. Morisset wants to avert a rise in the volume of client complaints and coverage problems. “As a regulator, this is a concern for us,” he says.

Insurance products sold online must be fairly simple, and the product manufacturer must offer tools on its website to help consumers evaluate their own needs. “We are well aware that advice will be needed for some products, but for others you have to face reality and admit that advice is not absolutely necessary,” Morisset says.

Just as pharmacists do not need to offer advice to clients who simply need to buy aspirin, “there are very important insurance products that consumers can easily understand,” Morisset explains.

Most consumers will not buy insurance products online. If insurers can attract people under 30 who do not usually think about insurance, all the better. This generation does absolutely everything on the Internet. “We hope to have better insured clienteles with products that suit them. The use of the net lets us target Generation Y,” Morisset says.

Eric Stevenson points out that Quebec is well-positioned to influence decisions across Canada. AMF members lead both the Canadian Council of Insurance Regulators (CCIR) and the CSA. Yet discussions with colleagues in other provinces have not resulted in a decision on which products should be sold online. It is quite complicated, Stevenson says.

“The market recognizes that this can be done more easily for some products than others,” he says. In auto insurance, for example, there is surely a way to serve a young buyer via the Internet. He adds that the AMF will keep an eye on online sales. If products are not sold appropriately, “we will step in,” he says.

The down side

The AMF’s position on online insurance sales has its critics, including several attendees of Morisset’s and Stevenson’s presentation.

Stéphan Bernatchez, chair of the board of the Insurance Brokers Association of Canada (IBAC), said it is misleading to compare the insurance and securities sectors. He points out that in the UK, where travel insurance and auto insurance policies have been sold online for nearly 15 years, 15% of policies are declared void at claim time because the client did not complete the form properly. “Clients find out that they are not covered only when they file a claim,” he says.

Buying insurance online will not appeal to most people, Louis Morisset replies. “Even for a T-10, if it takes 26 clicks, not everyone is willing to do that,” he says. Tools should be practical, and it is up to the regulator to judge how relevant they are.

Eric Stevenson mentioned that insurers are required to keep a complaint log. The AMF intervenes only if consumers are still dissatisfied after having complained to an insurer. Stevenson said, “I expect the consumer to be treated appropriately, as stipulated in the guidelines for business practices.”

Michael Luciani, vice-president of the Professional Association of Financial Services Advisors (PAFSA), asked about the AMF’s position on sales of segregated funds, which combine insurance and investments. “On the insurance product, the beneficiary, it is an extremely important tool that can be used disastrously. It can have very adverse effects for consumers who don’t understand it,” he says.

“The segregated fund is a fine example of a product for which I am really not sure how online sales could work,” Stevenson says. “It is a complex annuity product. There are often investment and guarantee options. I don’t want to see it sold online today.” Louis Morisset countered that mutual funds, similar products to seg funds, are sold online without agents.

Segregated funds

Eric Stevenson stresses that self-assessment tools offered to consumers must be rigorous. “There must be information, clients must be able to review and confirm their choices, and not be exposed to advertisements at the same time as they’re trying to understand what they are buying. Self-assessment is a serious exercise, but like distribution without representatives, it will be limited to specific products,” he says

Morisset added that disclosure rules adopted in securities will inevitably apply to segregated fund sellers. “The same advisor can distribute both mutual funds and segregated funds. The regulatory environment does not motivate people who sell mutual funds to sell segregated funds instead,” he points out.

Consumers find it odd to receive different information for these similar products, he adds. “That doesn’t mean that the same recipe must be applied to both securities and insurance. Both sectors need to evolve from the consumer’s perspective. We have to get there. We will hold a consultation with the CCIR specifically to let the industry debate this topic,” he says.

Morisset adds that the AMF’s role is to protect the consumer, and to make the market run smoothly. “It may not be that obvious that we can achieve this by imposing regulation that seems burdensome. We must not forget that the industry rests on confidence,” he says.

In the aftermath of the series of scandals in Quebec, such as those involving Norbourg, Earl Jones and Carole Morinville, among others, consumer confidence was shaken and the regulatory framework has become more complex. “It is hard to put the toothpaste back in the tube. We are trying. Initiatives like information at point-of-sale can counterbalance the fact that for the average person the prospectus is a difficult document to read,” Morisset points out. It is not easy to simplify the environment, he says.