A large majority of the Quebec brokerage network is not independent of insurance companies, and brokers concentrate their business on one or two principal insurers, according to a study conducted by the provinces’ financial services regulator.

The study of the industry’s business practices, conducted by the Autorité des marchés financiers, came on the heels of New York State Attorney General Eliot Spitzer’s discovery of unacceptable insurance practices in the U.S. last October.

In November 2004, the AMF sent questionnaires to insurers for the purpose of assessing commercial practices as part of a countrywide data collection carried out by the Canadian Council of Insurance Regulators. The AMF says its analysis of the responses “raised serious questions about the relationship between brokerage firms and insurers”.

The concentration of business volume by brokers is fostered by various commercial practices with insurers (loans, ownership ties, block transfers of business, contingent commissions), it reports. “Our analysis revealed a high concentration of brokerage business and highlighted certain distribution practices that are not in the best interests of consumers,” said AMF president and CEO Jean St-Gelais.

In response, St-Gelais announced that a public consultation would be held on new regulatory measures. The AMF says that three avenues are being considered for guiding the development of these measures: banning certain practices in the insurance industry; improving disclosure of relevant information to consumers; and, introducing the concept of “independent broker” for firms. The AMF says it is determined to ensure that the new regulatory measures are simple, and easy to apply and verify.

The AMF says it also launched three major investigations in the insurance industry. Over 70 businesses were targeted – insurers, related companies and firms. “The investigations focus primarily on transparency and the disclosure to consumers of business ties, as well as with the appearance of conflicts of interest,” it reports. “They specifically relate to ownership ties between insurers and brokers, whether directly or indirectly through other corporations. The investigations also deal with the effect of commercial practices in the insurance industry on the advisory relationship between representatives and their clients.”