As insurance regulators struggle to keep up with the roster of increasingly complex products on the market, they’re asking insurers to begin notifying regulators prior to introducing new products or making other significant changes.
The Canadian Council of Insurance Regulators (CCIR) released a letter to members in late July, expressing concerns about insurance companies having recently introduced “significant new products” that the regulators became aware of only after those products were made available to consumers.
“I think regulators felt a bit caught off guard, or behind the eight ball on things that had developed in the market that we didn’t know about,” says Carolyn Rogers, CCIR chairwoman and CEO and superintendent with the British Columbia Financial Institutions Commission.
Broader shift
Insurers are not currently required to obtain regulatory approval before introducing new products. Although the provincial regulators that comprise the CCIR are not in favour of imposing such a requirement, they’re looking for more proactive ways to track new products.
“When [insurers] do something that is going to have a significant impact on consumers, it’s helpful for us to know that,” says Rogers. “It equips us to respond to what often ends up in our office.”
The increasing complexity and innovation of insurance products is probably a key factor triggering this regulatory initiative, says Ed Skwarek, vice president of regulatory and public affairs with Toronto-based Advocis.
“With the changing demographics in Canada, and with the lower returns on investments, insurance companies have had to become far more creative with the types of products out there,” Skwarek says. “That is spawning the need for greater oversight on the insurance side, where they haven’t had that product-development oversight in the past.”
In addition to the introduction of new products, the CCIR says, it wants to be notified of other “substantial changes” that insurers are planning to make, such as discontinuing products, altering underwriting criteria or changing distribution models.
This CCIR initiative reflects a broader shift to a more proactive and risk-based regulatory stance among insurance-sector regulators, largely prompted by the new core principles of insurance regulation released in 2011 by the International Association of Insurance Supervisors (IAIS), a group representing insurance regulators from more than 200 jurisdictions.
“Those [IAIS] principles require regulators to be more proactive than we have been in the past,” Rogers says, “in terms of overseeing market conduct issues.”
The CCIR letter invites comments from sector members. And the CCIR has received plenty of feedback since the letter was sent out, says Rogers: “I think the letter has created some measure of concern out there that we are signaling an intention to create a regulatory approval process.”
Insurance-sector players are probably concerned about the prospect of a growing regulatory burden, says Lawrence Geller, president of L.I. Geller Insurance Agencies Ltd. in Campbellville, Ont.: “Nobody wants to be beholden to another regulator.”
Innovation
In addition, the prospect of a formal product-approval process raises concerns about the potential stifling of innovation.
“You have to give the industry the opportunity to develop new products,” says Skwarek. “I think the industry is responsive to the idea that [the regulators] want to know what’s coming to market, but it can’t be the type of regulation that would be stymieing development.”
Rogers says the CCIR respects those concerns. “It’s not the CCIR’s intention,” she says, “to create a whole bunch more reporting or to make it cumbersome or to affect the competitive environment. Or anything like that. We’ve had that discussion, and we’re not of the mind that it’s the way to tackle this.”
In the absence of a formal product-approval process, however, the CCIR says, regulators must be able to depend on the industry to advise them voluntarily of new products and other substantial changes.
Geller suspects that the regulators could have a hard time getting industry players to comply with voluntary requirements. “I would be interested to see the degree of voluntary co-operation,” he says. “I don’t know how great it would be.” However, Rogers says, she’s encouraged by the discussion underway so far. IE
© 2013 Investment Executive. All rights reserved.