A new spirit of co-operation has emerged among Canadian insurance companies, insurance advisors and industry regulators. All sides now support a consultation process dealing with managing conflicts of interest, ending a tense situation that began a year ago.

Tension arose after regulators threatened to impose new disclosure requirements that many in the industry — especially advisors — considered too complex.

The consultation process has now received “strong endorsement from regulators and industry associations,” says Grant Swanson, Toronto-based chairman of the industry practices review committee (IPRC) established by the Canadian Council of Insurance Regulators and the Canadian Insurance Services Regulatory Organizations. “It’s clear to everyone what the end goal is. There has been very constructive dialogue.”

“We appreciate and applaud the regulators for listening and working with advisors in a co-operative fashion,” adds Terry Zive, president of Gordon and Zive Inc. in Toronto and chairman of the advocacy committee of Toronto-based Advocis. “Based on where we started and where we ended up, it’s nice to see the type of consultation process that has prevailed.”

Swanson says the review committee will continue to meet with industry associations over the summer and will report back to the CCIR and CISRO in the fall.

The pressure for reform began in mid-2005, after New York State Attorney General Eliot Spitzer began a widely publicized crackdown on fraudulent bid-rigging in the U.S. insurance industry. His actions sparked an extensive examination by Canadian regulators of how the Canadian insurance industry manages potential conflicts of interest.

The first papers, released by the IPRC in June and November 2005, suggested new disclosure rules were needed. Subsequently, regulators have conceded they didn’t find any wrongdoing in the Canadian life and health insurance industry.

In late June 2006, Swanson sent a letter stating that no further reports or papers are planned. Instead, the IPRC will continue to consult with a working group started by the Canadian Life and Health Insurance Association. “We’re working with advisor organizations such as the Independent Financial Brokers of Canada and Advocis,” says Wendy Hope, vice president of external relations at the Toronto-based CLHIA.

The working group is addressing the three key issues outlined in the IPRC’s third consultation paper, released in February 2006:

> Priority Of Client’s Interest. An insurance intermediary (broker or agent) must place the interests of insurance policyholders and prospective purchasers ahead of his or her own interests.

> Disclosure Of Conflict Or Potential Conflict Of Interest. Consumers must receive disclosure of any actual or potential conflict of interest associated with a transaction or a recommendation.

> Product Suitability. The recommended product must be suitable to the needs of the consumer.

The working group is producing guideline templates, says Hope, adding that any guidelines will be passed by the regulators.

When the IPRC circulated its February consultation paper, Swanson says, it asked the industry to set out the steps that it would be able to take. “With respect to the product suitability principle, some respondents have identified technical issues and suggested word changes,” he wrote in his June 21 letter. “The IPRC welcomes wording suggestions that assist intermediaries, insurers and consumers to understand or apply the principle.”

One recent initiative that has been undertaken, says Swanson, is an addition to Advocis’s Best Practices Manual. At its annual meeting in June, Advocis launched the “emerging regulatory issues” section, designed to help advisors incorporate developing practice standards into their practices.

The working group plans to have a guideline on product suitability prepared before CCIR-CISRO’s fall meeting, says Susan Allemang, head of regulatory affairs at the Mississauga, Ont.-based IFB. Practices for ensuring product suitability already exist, she says: “It’s an issue of the industry just documenting that.”

One area of contention has been the harmonization of best practices across the provinces. In November 2004, Ontario passed Regulation No. 347, requiring advisors to disclose to clients in writing all actual or potential conflicts. The CLHIA and the advisors’ organizations had come together to develop that regulation, and it was adopted as the disclosure standard by Advocis members across the country. There are concerns that each province will have to pass similar regulations.

The IPRC will meet with provincial regulators to discuss what needs to be done in each jurisdiction. IE