The consumers’ association of Canada has filed a complaint with the federal Competition Bureau alleging uncompetitive and anti-consumer sales practices in the property and casualty insurance industry.

Meanwhile, the Ottawa-based consumer rights advocacy group says the examination by regulators of industry sales practices is unsatisfactory.

Bruce Cran, president of the CAC, says the organization is particularly concerned about the practice of bonuses being paid as a reward for “steering business” to particular insurers. Also, he says, the industry’s use of the term “independent broker” is misleading to the public. “These so-called independent brokers are not independent at all. If you poll people on the street, they think they are getting the best price. But they aren’t getting six to 10, or 30 quotes at all,” says Cran. Instead, he adds, P&C brokers are merely checking with the few insurers that they represent.

Cran says Canadian insurance regulators are not being thorough enough in researching the problems of industry sales practices. Regulators circulated questionnaires within the industry — one directed to the P&C sector in November 2004 and another to the life and heath sector in December 2004.

No evidence of any illegal insurance-related activities was found. Of course, it wasn’t, says Cran, as the likelihood of any industry participant admitting wrongdoing is slim.

Cran derides this effort, comparing it with the investigation into insurance sales practices waged by New York Attorney General Eliot Spitzer. The New York investigation unveiled fraud; it said executives at leading insurance companies colluded to arrange non-competition for P&C contract bids, and then shared the clients under false pretenses.

The Canadian insurance industry takes the position that what occurred in the U.S. is completely different than the commonly acknowledged — and accepted — practice in Canada of paying bonuses based on the amount of business steered toward a particular insurer.

Yet, insurance advisors say, regulators appear ready to crack down on the industry. Several provinces are pushing for legislative reform, with Saskatchewan, Alberta, Newfoundland and Labrador, and Ontario leading the way.

The industry practices review committee, jointly established in late 2004 by the Canadian Council of Insurance Regulators and the Canadian Insurance Services Regulatory Organizations, is prepared to urge provincial governments to pass legislation that will:

> codify the priority of the client’s interest;

> restrict performance-linked bonuses offered to policy sales intermediaries;

> enhance transparency of compensation, ownership and other financial interests.

Grant Swanson, chairman of the review committee and executive director of licensing and market conduct at the Financial Services Commission of Ontario in Toronto, denies the provinces are ready to implement these rules. These are simply “policy options” set out in a CCIR-CISRO paper that was released in June. The consultation process is only at the “information-gathering stage,” he says.

Swanson acknowledges that one of the roles of CCIR-CISRO is to harmonize provincial insurance legislation. But, he says, it’s “premature” to be talking about legislative reform.

Meanwhile, Swanson says, a conference call was held with the CAC — among other organizations — to solicit their views on insurance industry sales practices. However, he notes, the CAC has not made a written submission and the consultation process is “open.” (At this point, Cran says, he cannot discuss details of the CAC’s complaint to the Competition Bureau.)

In its June consultation paper, the committee makes it clear its main concern is “the appearance [of] a conflict of interest or a potential conflict of interest. This may have a negative impact on consumer confidence in the insurance marketplace.”

Within the P&C industry, the committee found, the majority of insurance companies use brokers to sell their policies, and more than two-thirds of insurers offer contingent commissions to their agents or brokers. More than half of the insurers reported having loans, ownerships and other similar financial relationships with sales intermediaries.

The life and health industry is organized differently. Most agents are independent from the insurers and go through managing general agents, which give bonuses that are based on production — not based on which insurance company is getting the business.
Moreover, say life industry representatives, codes of conduct always put the customer’s priorities first. For example, the Life Underwriters Association of Canada, which was a predecessor of Advocis, placed client-interest priority in its ethics code
when it was formed in 1906.

Meanwhile, the CCIR-CISRO industry practices review committee has received 68 responses to its June consultation paper. It intends to release a summary and analysis of the responses in early November. (Each individual response can be viewed online at www.ccir-ccrra.org/publications/index_en.htm.) Following the release of the summary, says Swanson, the regulators will meet again to decide the next step.

@page_break@It’s too early to talk about legislation, he says. However, if legislative remedies are warranted to deal with potential conflicts of interest, there would be another consultation period. Instead, measures may be taken to support industry initiatives already undertaken. That would include Ontario Regulation 347, which states all actual and potential conflicts of interest must be disclosed in writing to clients. IE