As insurance regulators focus more heavily on consumer protection, firms in the insurance industry will need to monitor the quality of advice that clients are receiving, the suitability of products being recommended, and other elements of the client experience more closely, KPMG LLP executives said at an insurance regulatory seminar the company hosted in Toronto on Thursday.
“Consumer protection is not a new concept. However over the past decade, we have seen a growing focus on the duty of care to customers,” said Elizabeth Murphy, partner, financial risk management, with KPMG. “Globally, conduct regulators – including in Canada – are expanding and enhancing consumer protection frameworks and expanding their expectations about treating customers fairly.”
The types of market conduct issues that regulators are beginning to watch for, Murphy said, include poor quality advice, sales of products that are not suitable to client needs, customer complaints and disputes that are not dealt with in a fair manner, and failure to properly protect client privacy.
Insurance regulators have addressed consumer protection historically through mandated disclosure documents and other compliance requirements, Murphy said. As it has become a greater priority, however, she said regulators are beginning to take a much more active approach in this area.
“These developments include a move to a more proactive, outcomes-based approach to the supervision of market conduct risk,” Murphy said.
In other jurisdictions around the world, such as the U.K., regulators have begun issuing significant fines to firms for such market conduct infractions as failing to provide clear, fair and balanced information during the sales process.
“There’s dozens of cases out there of market conduct fines,” said David Pelkola, director, financial risk management with KPMG. “The regulators are getting more aggressive in that [area].”
Although these types of cases have not yet occurred in Canada, Murphy said market conduct and consumer protection are certainly on the radar of Canadian regulators.
“While past experience has not demonstrated a history of significant unaddressed market conduct problems in Canada,” she said, “we are expecting that there will be developments in Canada in market conduct regulatory expectations.”
Murphy pointed out that international regulators have identified Canada’s insurance industry as having a consumer protection regime that falls short of international standards. Specifically, a 2014 assessment by the International Monetary Fund found that Canadian insurers needed improvement in meeting the market conduct guidelines set out in the International Association of Insurance Supervisors’ Insurance Core Principles (ICPs).
The Canadian Council of Insurance Regulators, Murphy noted, is now working on helping provincial regulators improve their compliance with the ICPs.
In addition, she noted that consumer protection has been identified as a key theme in the current review of the Financial Services Commission of Ontario’s (FSCO) mandate. In particular, the Ontario government is consulting with stakeholders on whether FSCO’s legislative mandate should refer explicitly to the goal of consumer protection.
As regulators turn their attention to this area, insurance companies should ensure that consumer protection is embedded in all aspects of their operations, Murphy said.
“Consumer protection and market conduct risk should be far more than regulatory compliance issues,” she added. “Insurers need to ask themselves whether at all levels of their organization — including at the board level — whether they’ve identified and addressed potential consumer harm.”