Insurance advisor and industry organizations remain wary about the ongoing regulatory examination of their industry’s disclosure practices.

Early last month, the industry practices review committee of the Canadian Council of Insurance Regulators-Canadian Insurance Services Regulatory Organizations released a report entitled Summary of Responses on the Consultation Paper on Relationships Between Insurers and Sales Intermediaries: Achieving best practices.

The report contains a summary of responses to the consultation paper that the committee released in June. However, it also contains commentary that is leaving advisors suspicious of whether CCIR-CISRO will be pushing for nation-wide legislative reform. The report’s analysis sections repeatedly refer to “the opportunity to harmonize” industry practices.

After the report came out, Toronto-based Advocis released a special bulletin, asserting that the joint report “opens the door to regulation.”

Sara Gelgor, vice president of regulatory affairs at Advocis, says the committee has welcomed industry input, but adds there is an underlying “tension” in both the consultation paper and the more recent report that hasn’t been explained to the industry. She says there is no evidence of any wrongdoing in the life insurance industry, no concern raised by consumers and no analysis of the financial impact or benefit that regulatory reform would have.

“Hopefully, [the regulators are] not prejudging,” says John Whaley, executive director of the Mississauga, Ont.-based Independent Financial Brokers of Canada. “I thought they were giving us a summary. The added editorial commentary — it’s unfortunate.”

On a positive note, the industry practices review committee commented that it is encouraged by voluntary initiatives undertaken by industry and advisor organizations.

That’s a good sign, according to officials at the Canadian Life and Health Insurance Association, the lobby organization for insurance companies. “We’re pleased with that approach,” says Wendy Hope, the CLHIA’s vice president of external relations.

The report divides its summary and analysis into five themes:

> Is there a need for a regulatory review? “[R]egulatory requirements and industry association codes are not uniform across the country. At a minimum, there is an opportunity to harmonize further the best practices across Canada.”

> Should independence be defined? It is clear from the responses there is no agreement nor common understanding about what “independence” means. But due to the variety of intermediaries and the markets they represent, consumers need to be made aware of the differences, says the report.

> Should legislation or regulation require that the customer comes first? The majority of industry association codes and provincial insurance council by-laws contain a provision for client priority, however the wording varies, says the report. Industry associations cannot enforce these provisions, and not all intermediaries belong to an industry association. Regulators can take action against agents and brokers, but “there may be opportunities to harmonize best practices.”

> Do performance-linked benefits or other related financial links lead to conflicts of interest? It can be argued that when a broker or agent can demonstrate that an insurance product is suitable and price-competitive, any conflict of interest resulting from compensation, ownership or financial links is being adequately managed, says the report, but how proper “management” of conflicts would have to be demonstrated is not explained.

> Is the current level of disclosure to insurance consumers adequate and consistent across jurisdictions? Consistency and enforcement of disclosure is a concern. The report specifically pointed to the “market searches” conducted by agents and brokers.

Like the CLHIA, the IFB believes it is important to keep up its own initiatives to help advisors and quell the committee’s concerns. During its fall summit in Toronto, it held a panel discussion on disclosure. One participant was Susan Allemang, the IFB’s head of regulatory affairs.

Since Ontario’s Regulation 347 came into force in November 2004, she says, any actual or potential conflicts of interest must be disclosed to clients in writing. (In September 2005, Advocis told Investment Executive this regulation has become the “baseline across the country” even though it might be above what some provincial regulators require.)

Allemang says some examples of potential conflicts include compensation tied to volume of sales, and placing business during a contest period to qualify for a trip.

Written disclosure is the best way to avoid trouble, she says. The document should be signed and dated, and continually updated as circumstances change.

Meanwhile, Hope says, the CLHIA is pushing forward with disclosure initiatives announced in December 2004, geared toward increasing disclosure about products, compensation and advisor incentives. (See www.clhia.ca/announce/news_12_21_04_e.html.)

@page_break@Since 2004, the CLHIA has been working with advisor organizations to develop disclosure guidelines, says Hope. A set of guidelines for new products is slated to come into force on Jan. 1, 2006. IE