Advisors protest

The Canadian Life and Health Insurance Association Inc. (CLHIA) instituted its new disclosure regime through Guideline G19, issued last month. Instituting the disclosure rule follows consultation with CLHIA members, notification of the insurance industry’s regulators and ratification by the CLHIA’s board of directors. However, G19 was ratified without prior consultation of affected advisors and intermediaries.

The disclosure is expected to commence on Jan. 1, 2019 – six months after the original implementation date of July 1, 2018. The CLHIA announced the delay in early February after receiving backlash from advisors.

“[G19] was developed at the CLHIA without the input of advisors and intermediaries, who were not consulted until the guideline was approved,” says Susan Allemang, director of policy and regulatory affairs with the Independent Financial Brokers of Canada in Mississauga, Ont. “The issue we have is not with the requirement for disclosure, but with the process.”

On Jan. 31, the CLHIA began holding cross-country sessions with advisors to get their input on G19.

“Obtaining input from the advisor community was always our intention, and we have begun a robust cross-Canada, in- person and online consultation with them,” says Lyne Duhaime, president of the CLHIA’s Quebec chapter, adding that the association also is creating an advisory committee jointly with advisors to get the latter group’s input on implementation.

“We know we need to get it right, and that is why we have planned to phase in implementation of the disclosure standards over a two-year period,” Duhaime says.

According to the CLHIA, G19 was developed in response to changing expectations of insurance plan sponsors, regulators and other stakeholders regarding compensation disclosure as a part of a transparent process aimed at managing conflicts of interest and treating customers fairly.

“Transparency in group intermediary compensation disclosure is an important component of helping to ensure fair and appropriate outcomes for plan sponsors,” the guideline states.

G19 will apply to the group retirement services and group benefits business of all companies that are members of the CLHIA, regardless of the form of compensation paid or of the distribution channel used. (The CLHIA’s member companies account for 99% of Canada’s life and health insurance business.)

Compensation disclosure will cover all direct, indirect and in-kind remuneration paid to intermediaries, including amounts paid in relation to transfers, retentions, cash flows, trailer fees, bonuses, marketing allowances, sponsorships, travel expenses and conference incentives.

For group benefit plans, compensation will be reported as a percentage of premiums or claims paid; for group retirement services, it will be based on a percentage of contributions received and assets under administration. In both cases, compensation also will be disclosed in real dollar value.

For new contracts, disclosure will be made on or before the effective date of the contracts. For ongoing contracts, disclosure will take place at least annually.

Advisors have expressed several concerns with G19. Lawrence Geller, president of L.I. Geller Insurance Agencies Ltd. in Campbellville, Ont., agrees with the prospect of greater disclosure, but contends that there should be full disclosure of the costs of administering insurance plans.

“The CLHIA is not telling the whole truth, but only part of the truth [regarding] full disclosure,” Geller says. “Agents are not the only ones who are being paid out of the portion of premiums allocated to the cost of plan administration.”

Geller notes that a portion of those costs are allocated to internal sales representatives, claims adjudication, marketing, advertising and executive compensation.

“If there’s going to be full disclosure, these costs, which clients are not necessarily fully aware of, also must be disclosed,” Geller says.

However, insurance companies are unlikely to disclose those costs anytime soon. “This [type of disclosure] is not something that we foresee at this time,” Duhaime says.

Geller believes that insurance companies are trying to avoid the possibility of full cost disclosure being mandated by regulators: “By disclosing agent compensation, [insurers] are hoping that this action will be viewed in positive light by the regulators [so insurers] will not be forced to disclose other costs.”

Dave Patriarche, president of Mainstay Insurance Brokerage Inc. in Thornhill, Ont., and founder of the Canadian Group Insurance Brokers Inc., views the fact that insurance companies will be disclosing advisor compensation as “adversarial.”

“[The disclosure model] shows a lack of trust in brokers doing it themselves,” he says. The disclosure will put a spotlight on the earnings advisors receive, he adds, with no recognition of the value they bring to the table.

Allemang and Patriarche anticipate the compensation disclosure will be expanded to include individual life insurance. In fact, Patriarche suggests, there’s greater risk of conflicts inherent in the sale of individual life insurance policies vs group plans, in part because commissions on individual policies are higher than those for group plans.

Duhaime is more circumspect: “We do recognize that there is greater risk due to the structure of compensation on individual products, in that disclosure could negatively impact a consumer’s decision as to whether or not to purchase insurance.

“Much of [the CLHIA’s] current discussion,” she adds, “is focused on how to achieve a balance between compensation disclosure and ensuring that Canadians are able to meet their financial security goals through appropriate levels of insurance.”

Still, there’s overarching concern that insurance companies have an additional agenda in supporting G19. Geller suggests that insurance companies could be gearing up to shift toward a captive advisor model, in which white-label insurance products would be sold through managing general agencies that are associated with specific insurers.

Under that model, Geller says, “The only insurance agents that would be left are those who are salaried.”

Patriarche shares those sentiments, noting that insurance companies might have a “hidden business objective,” in which they are preparing to shift toward lower cost direct sales by eliminating the role of intermediaries.