FSRA streamlines fair treatment of customers approach for insurance industry

Governments and financial regulators appear to be continuing their efforts to reduce overlapping, duplicative regulatory requirements on those they regulate.

The Financial Services Regulatory Authority of Ontario[1] (“FSRA”) has issued a new fair treatment of customer (“FTC”) Approach for insurers and insurance intermediaries licensed in Ontario, which came into effect on January 1, 2021 (the “Approach”). This new FSRA Approach adopts in full the September 27, 2018 joint guidance issued by the Canadian Council of insurance regulators (“CCIR”) and the Canadian Insurance Services Regulatory Organizations (“CISRO”) (the “CCIR/CISRO Guidance”). FSRA noted that its aim in issuing the Approach was to harmonize regulatory approaches in order to reduce regulatory burdens on licensees and promote the adoption of nationwide industry standards.

This is likely a welcome change for Ontario insurers and intermediaries, who were previously subject to overlapping requirements under guidance issued by FSRA’s predecessor agency, the Financial Services Commission of Ontario (“FSCO”). The former guidance, Superintendent’s Guideline No. 03/18: Treating Financial Services Consumers Fairly (“FSCO Guideline 03/18”), was largely identical to the CCIR/CISRO Guidance, and at the time FSCO determined that licensees were permitted to use either document in meeting Ontario’s regulatory FTC requirements. This overlapping approach generated confusion among those seeking to follow a single uniform standard. By adopting the CCIR/CISRO Guidance, and confirming FSCO Guideline 03/18 no longer applies to insurers and insurance intermediaries, this overlap has now been eliminated.

The CCIR/CISRO Guidance

The  CCIR/CISRO Guidance contents will be familiar to Ontario insurers and insurance intermediaries, since it has been in place since 2018 and because it largely aligns with FSCO Guideline 03/18.

At a high level, the CCIR/CISRO Guidance is based on Insurance Core Principle 19, Conduct of Business (ICP 19), which was established by the International Association of Insurance Supervisors and which prescribes fundamental fair treatment principles that apply throughout the lifespan of an insurance contract, from before the inception of a contract up through the conclusion of all obligations under the contract. The CCIR/CISRO Guidance is principles-based and is not intended to be rigidly prescriptive; instead, insurers and intermediaries are afforded a margin of flexibility in adopting FTC standards based on the nature, size and complexity of their operations.

Expectations under the CCIR/CISRO Guidance include:

  • sound conduct of business throughout the life-cycle of the insurance product;
  • fair treatment of customers through ethical, good-faith behavior;
  • cultivation of a customer-centric business culture;
  • effectively managed and diligenced relations between insurers and intermediaries;
  • transparent dealings with regulators;
  • fair treatment of customers as a core component of the governance and business culture;
  • management of conflicts of interest;
  • management of outsourcing arrangements;
  • design of insurance products;
  • accountability for distribution strategies;
  • appropriate customer disclosures before and at the point of sale;
  • accurate, clear and not misleading product promotion;
  • provision of relevant advice, taking into account the customer’s disclosed circumstances;
  • provision of appropriate disclosures to policyholders throughout the lifetime of the contract;
  • diligent and fair claims handling and settlement;
  • diligent, fair and accessible complaints handling and dispute resolution; and
  • protection of confidentiality of personal information.

Ontario insurers and intermediaries must conduct self-assessments using the CCIR/CISRO Guidance when setting new policies and procedures and are expected to refer to the principles laid out in the CCIR/CISRO Guidance while conducting routine business operations.

FSRA will conduct market review of insurers to ensure that their business practices are aligned with the fundamental FTC principles as set out in the CCIR/CISRO Guidance, including corporate governance, training of agents and outsourcing arrangements, incentive structures, marketing and advertising, point-of-sale communication, claims handling and complaint handling and dispute settlement.

Other FSRA-regulated sectors

While FSCO Guideline 03/18 no longer applies to the Ontario insurance sector, it continues to set FTC standards for the mortgage brokering, loan and trust, and credit union and caisse populaire sectors in Ontario.

Additional FTC updates

In December, CCIR published its first publicly available Annual Statement on Market Conduct (the “Public Report”) in respect of data collected for the 2019 calendar year.  The Public Report is based on data collected from insurers in the Annual Statement, which was introduced by the CCIR in 2017 to collect information on insurers’ governance, practices, policies, and treatment of customers.  The availability of the Public Report allows readers to compare insurers’ FTC performance against industry averages and fair treatment benchmarks.  The Public Report also provides observations on industry trends, and how the Public Report relates to the CCIR/CISRO Guidance.

FTC findings in the Public Report include data regarding the percentage of insurers with standalone FTC policies, the percentage of insurers with a documented code incorporating FTC principles, and the percentage of insurers reporting FTC as a priority at each stage in the product cycle. The Public Report also provides data regarding information on the percentage of sales of insurance through the internet.  On this last point, it will be interesting to compare this 2019 data to the 2020 data given the COVID-19 pandemic.

Overall, there were some very positive findings, such as the vast majority of insurers stated that FTC was a priority for them at each stage of the product life cycle and in every area of operations, and many classes of insurance had fairly low customer-cancellation ratios, which is indicative of customer satisfaction.  However, there are some areas where insurers could consider taking further action, such as considering whether customer satisfaction surveys are appropriate as currently only 61% of Property & Casualty insurers and 49% of Life and Health insurers conduct such surveys.  It was also not clear whether all insurers had either an FTC policy or a code incorporating FTC principles in place.  Finally, insurers should take note of those areas that gave rise to complaints and, if relevant, consider what additional steps to take in order to minimize the number of complaints.

As suggested in the Public Report, insurers should use the findings to benchmark their own operations and processes.  Insurers are also reminded that their responses in the Annual Statement are used by the regulators to determine which insurers should be examined.  Any finding of non-compliance with the CCIR/CISRO Guidance may lead to regulatory action.  For example, FSRA noted in the Approach that it may use any of the statutory powers at its disposal to execute on the Approach, including remedies such as education, remediation, regulatory discipline and intervention. 

[1] Lawrence Ritchie is currently a member of the FSRA Board of Directors. The views expressed in this article are those of the authors and do not necessarily reflect those of FSRA’s Board of Directors, its leadership, or staff.