Last year’s insurance industry storm over proposals made by regulators regarding compensation benefits and disclosure has not subsided completely, but abated for the time being with the release of the most recent consultation paper by the Industry Practices Review Committee (IPRC), a joint effort of the Canadian Council of Insurance Regulators and the Canadian Insurance Services Regulatory Organizations.
In its third paper focussing on relationships between intermediaries and clients and what it terms “managing actual or potential conflicts of interest,” the IPRC removed one cause of the storm: a policy option proposal made in a previous IPRC consultation paper suggesting the introduction of legislation or regulation to restrict insurers from offering performance-linked benefits (see The Insurance Journal, August 2005).
In its latest paper, Managing Conflicts of Interest: A Consultation Paper on Enhancing and Harmonizing Best Practices, the IPRC does not contemplate partial or complete restriction on performance-linked bonuses as it had in the earlier papers.
In its most recent paper, the IPRC says that its three main recommendations (see summary on page 8 for details) remove the need for restrictions, according to Grant Swanson, IPRC chair and executive director, licensing and market conduct division at the Financial Services Commission of Ontario.
“Our feeling was that the three principles, plus the actions that are necessary to implement those principles, are an effective way of managing conflict of interest,” he told The Insurance Journal. “That’s part of the reason why we – in this paper – decided not to recommend prohibitions or limitations on those forms of compensation.”
For the same reasons, it became unnecessary to include a formal definition covering a practitioner’s ‘independence’, another contentious issue in the earlier papers.
The most recent paper places part of the onus for disclosure on insurance companies, saying that they should make available on their websites sensitive information such as percentage range of compensation for each major line of business or type of product.
After the release of the first two papers, practitioners had been concerned that this level of detail in disclosures to their clients would lead to misunderstanding. In this case, “the IBAO (the Independent Brokers Association of Ontario) and the IBC (Insurance Bureau of Canada) have entered a voluntary initiative in Ontario whereby that kind of information is available on insurers’ websites,” he explains.
One feature of the earlier papers remains in the third paper. While it leaves the door open for voluntary compliance to the IPRC’s new recommendations by brokers, their associations, insurers and their associations, the regulators reserve for themselves the right to the final call in all matters, Mr. Swanson says. “The paper does make it clear that if the outcomes set out in those three principles don’t happen, as regulators we would then look at (what) further steps (are) necessary.”