British Columbia’s Ministry of Finance recently released a set of Preliminary Recommendations (the “Consultation Paper”) arising from its review of the province’s Financial Institutions Act (FIA) and Credit Union Incorporation Act (CUIA). The review, which is mandated by statute every 10 years, is intended to ensure that the FIA and CUIA remain aligned with their objectives, which include:
- Industry stabilization;
- Promotion of sound risk management;
- Early detection of issues;
- Implementation of international standards (with due allowance for particular needs and circumstances); and
- Red-tape reduction.
The Consultation Paper builds on stakeholder submissions that were received in 2016 pursuant to an earlier public comment process on the review and updating of the FIA and CUIA.
While this update focuses only on the proposals that most directly affect the insurance industry, it should also be noted that the recommendations include significant, more general changes to British Columbia’s financial services regulatory structure. For example, the Financial Institutions Commission (FICOM) would take on increased independence as a Crown agency that would be accountable to the Legislature through the Minister of Finance. FICOM’s powers would include rule-making authority that would allow it to create legally-binding obligations rather than limiting it, as is currently the case, to the issuance of “guidelines” interpreting current regulatory requirements.
The Consultation Paper is intended to generate discussion and does not represent government policy. Submissions and comments should be directed to the B.C. Ministry of Finance on or before June 19, 2018.
Scope of the review in the insurance sector
Insurance is one of the sectors significantly impacted by the recommendations. While British Columbia’s Insurance Act was not included in the review, the FIA is also a key part of the insurance regulatory regime in B.C.
Key Recommendations Affecting Insurers and Agents
Provide discretion to depart from federal solvency standards
Historically, B.C. regulators have applied federal capital standards to insurers incorporated under B.C. law. Under Recommendation 7, FICOM would have the discretion to depart from OSFI standards in order to account for risks that may be unique to British Columbia. In addition to allowing discretion on a case-by-case basis, FICOM’s proposed rule-making authority could also be exercised more broadly to create a distinct standard for B.C. insurers.
Increase disclosure of financial information
Under Recommendation 8, FICOM would have the authority to collect and publish financial and risk information of the type that is already published by OSFI and the provincial authorities in Alberta and Quebec, as well as additional information, as appropriate, that would be released in aggregated form only. In addition, records that are required to be made available for public inspection will now also be required to be made available online.
Allow FICOM to share information with the national insurance complaints database
British Columbia is currently the only province that does not participate in the national insurance complaints reporting database, an anomaly that would be corrected under Recommendation 10. British Columbia would also join the other provinces in the replacement reporting system that is currently under development by the Canadian Council of Insurance Regulators (CCIR).
Continue the prohibition on the purchase of insurance outside B.C.
Recommendation 14 would continue the current prohibition on the purchase of insurance outside of the province, including the existing exceptions for situations where insurance is otherwise not available and for self-insurance through B.C. captives and reciprocal exchanges.
Provide FICOM with authority to apply for windup orders against insurers
The FIA would be amended under Recommendation 16 to ensure that FICOM has the necessary authority to take control of, or wind up, a troubled insurer. Consideration will be given to requiring FICOM to apply to the court to intervene, as is currently the rule in Alberta and Saskatchewan.
Maintain current standards for Government communications on emergency preparedness
In the consultation, some insurance industry representatives suggested better communication of B.C. Government disaster preparedness policies. However, Recommendation 20 states that existing and planned Emergency Management BC programs are sufficient to communicate the importance of insuring against disasters such as floods and earthquakes.
Extend restricted licensing beyond travel agencies
Noting that many “incidental” insurance products (e.g. extended warranties, funeral insurance and third-party credit insurance) are becoming both more complex and more controversial, Recommendation 44 proposes to extend the restricted licence requirement to all entities that sell insurance incidentally to their ordinary business. Currently, B.C. applies this requirement to travel agencies only (with respect to travel insurance) but the recommendation, if adopted, will apply broadly to other incidental forms of insurance, consistent with the approach in the other western provinces.
Although travel agents and funeral directors are regulated by Consumer Protection BC, the Consultation Paper does not favour a proposal to give that agency authority over incidental insurance activities in those professions.
Increase insurers’ oversight responsibilities for exempt sellers of their products
Recommendation 45 would require insurers to ensure that exempt sellers of their products receive adequate training and guidance. FICOM would be authorized to “issue enforceable guidelines that set out how insurers must oversee exempt sellers and/or sellers under a restricted licensing regime.”
Impose new restrictions on products sold on a post-claim underwriting basis by exempt or restricted-licence sellers
While recognizing that selling certain products on a post-claims underwriting basis can improve consumer access, Recommendation 47 proposes new requirements designed to reduce the risk that purchasers will not understand that they may not actually have coverage in some circumstances. These “could include” better education of sales staff, specific point-of-sale disclosures, standardized wording of health questions and/or prohibitions on the denial of claims based on certain types of innocent misrepresentations in credit insurance applications.
Develop a code of conduct focused on fair treatment of consumers
Recommendation 48 proposes the establishment of an insurer code of conduct, noting that this would ideally be achieved by adopting the code that is under development by the CCIR. Adopting a national code would help to ensure consistency in an industry that operates across multiple jurisdictions.
Protect self-assessments under B.C.’s FIPPA legislation
Recommendation 51 calls for legislative amendments to ensure that self-assessments prepared under the FIA by B.C. insurers and other financial institutions are protected from Freedom of Information requests under the Freedom of Information and Protection of Privacy Act (FIPPA). There is a carve-out for mutual insurer policyholders who would have a right of access as owners.
Continue licensing of special brokers by the Insurance Council rather than FICOM
A proposal to follow the practice of other provinces by requiring special brokers to be licensed by FICOM was rejected. Recommendation 56 notes that special brokers are already licensed by the Insurance Council and that the risks associated with their activities are sufficiently addressed by existing legislation and regulation.
Develop a legal framework for online sales of financial products
Under Recommendation 57, the CCIR’s 2013 report, Electronic Commerce in Insurance Products, would be used as the basis for a new legal framework that would allow insurance products (and other financial products) to be sold online. This proposal comes in response to increasing demand, particularly from younger consumers, for greater online access to financial products. The legal framework would be designed to ensure that customers are informed, e.g. by ensuring that they have access to an advisor and that they adequately understand the products that are available to them.
Allow credit unions to promote insurance sales on their websites
The promotion of insurance on credit union websites does not pose a problem and should not be prohibited under the general rule against the sharing of premises by insurance agencies and credit unions. Recommendation 58 notes that credit unions have reduced their involvement in insurance sales in recent years.
Adjust the formula for rebate caps
The cap on rebates will now be the lesser of 25 percent of the first year’s commission and 25 percent of the first year’s premium. As noted in Recommendation 60, the existing cap is 25 percent of premium, which often exceeds the commission paid to sellers of property & casualty insurance. The proposed amendment would adjust for disparities in commission structures between sellers of life insurance and sellers of property & casualty insurance.
Require reporting of referral payments to insurance licensees
In keeping with current trends toward enhanced transparency, Recommendation 61 would enhance referral commission disclosure requirements. The recommendation does not include information about the precise nature of the enhancement.
As noted above, submissions and comments should be directed to the B.C. Ministry of Finance by June 19, 2018.