Before a significantly new insurance product goes to market, regulators have told insurers that they would like to know about it. With the goal of improving their market intelligence, the Canadian Council of Insurance Regulators (CCIR) is currently looking at how best to set up a mechanism that would enable them to proactively gather information from insurers about important new products and other key market developments.
In a letter to the industry last summer, CCIR’s chair Carolyn Rogers stated,“Recently CCIR members became aware of the introduction of some significant new products only after the products were already in the market, and then, not from the companies involved but from third parties. This lack of communication poses a risk to the companies if regulatory problems subsequently arise.”
The letter says that regulators need to be aware of developments “where the relationship between insurers and consumers may change including new products being developed, significant changes in underwriting criteria or claims adjudicating, changes in distribution methods, etc.”
It continues that unlike many countries, Canada does not have a regulatory regime requiring companies to obtain approval before introducing new products or making other significant changes to distribution models or consumer interactions. The letter adds, “CCIR members are not in favour of building such a regime, but this means that we must depend on the industry to engage regulators voluntarily before new products or substantial changes are introduced.”
The letter concludes by saying that the CCIR welcomes suggestions from industry members about the best ways to make sure relevant information is communicated to regulators in the easiest way.
In an interview with The Insurance and Investment Journal, Carolyn Rogers said the letter was an “opening invitation” to the industry to start a conversation on this subject.
The objective would be to establish a mechanism through which insurers could inform all regulators at the same time of new developments. “It seems efficient to us that an industry member should be able to inform the regulatory community once rather than having to inform and answer questions from thirteen different jurisdictions. We have yet to work out with industry the particulars of the mechanism to accomplish this goal,” said Rogers.
She calls the reaction from insurers to the CCIR’s letter “guardedly positive”. No one disputes our need for market intelligence gathering; most concerns seem to be around the possibility that this might increase the amount of regulation and associated costs. We expect that, as we work through this, these concerns will prove unfounded.”
The next phase of this discussion with the industry will take place at the end of October in a series of stakeholder meetings set up by the CCIR. Rogers adds that there is no hard timeline to come up with a solution.
In an interview with The Insurance and Investment Journal, Grant Swanson, executive director of the Licensing & Market Conduct Division of the Financial Services Commission of Ontario (FSCO), says that insurance companies have no reason to worry that regulators’ interest in being proactively informed on market developments means they will be looking to pre-approve products before launch.
“The key message is a simple one: You as a company are interested in what’s going on in the market place. Well, regulators are too. It’s not really more complicated than that...It’s simply saying, ‘Just keep us informed about what’s going on.’”
He added that with respect to Ontario, the Ontario Insurance Act does not give regulators authority to pre-approve life insurance products anyway.
Are there any recent products that have raised concerns among regulators? Swanson says it is not the products themselves that are a problem, “It’s more the notion that as a regulator you are expected to understand what’s going on in the market place. If there are changes occurring in the market place that you’re not aware of, that in itself is the issue or the problem.”
In life insurance some significant new products have been launched in the market recently. Swanson gave the example of products that respond to the low interest rate environment. “There have been a lot of initiatives to derisk insurance products…Guarantees sometimes have been reduced or features have been removed from products.”
“Those things, as you might expect, are of interest to regulators…” Swanson added that over the years there have been a number of companies who have been quite proactive about keeping regulators up-to-date, but this is not universal.
“What we’re really saying here is that if you’re doing something that is new or you would consider new in the marketplace, we’d be interested in being informed about it. It’s not with a view that companies are coming to seek our approval...”
FSCO’s market intelligence unit
Swanson added that FSCO is in the midst of establishing its own market intelligence unit, which is aimed at helping the regulator gather information in a more organized manner. Generally, FSCO receives information in informal ways such as via meetings, attending industry conferences or through filings. The new unit, however, enables FSCO to take a more systematic approach, allowing it to keep track of what’s going on in all the sectors it regulates.
He adds that there is “a strong connection” between the CCIR’s initiative and FSCO’s new unit since this unit will also help FSCO stay aware of the products being offered in the market place. In addition, the FSCO unit is also involved in other areas of interest, such as regulatory and market developments around the world.
A topical example is the longevity insurance that’s used in the U.K. for pension risks, Swanson says. “It’s not something that’s well established in the Ontario marketplace, but it’s well established internationally. Those are the kinds of things that are of interest to regulators and to FSCO.
FSCO hired a manager for the unit in July 2012 and is the process of recruiting more staff members. “Most regulators don’t have a specific market intelligence function, so we’re essentially evolving this on our own, as opposed to copying something that somebody else already has.”