Quebec’s financial industry regulator will shortly introduce rules aimed at ensuring that consumers are aware of close ties between brokers and property and casualty insurers.
The new disclosure rules, expected within weeks, will focus on the large amount of business that many P&C brokers do with a limited number of insurers.
“Our goal is to ensure that consumers are better informed about the nature of the relationship between their insurance broker and their insurer,” Jean St-Gelais, head of the Autorité des marchés financiers, said in a recent speech to an insurance convention in Quebec City. The measures follow an AMF report on the P&C industry issued in April, followed by public consultations in September.
The moves are part of the response by Canadian insurance regulators to revelations of corrupt dealings in the U.S. P&C industry brought to light by New York State Attorney General Eliot Spitzer. In 2004, Spitzer accused some large U.S. insurance brokers of corrupt and anti-competitive practices, including bid-rigging.
The AMF and other regulators studying Canada’s P&C industry have found no indication of corruption, but they have flagged the need for better disclosure of the often cozy relationship between brokers and insurers.
The AMF report — based on a survey of industry participants, inspections and investigations — has found that the “large majority” of the brokerage industry in Quebec is not independent from insurers.
“Large brokerage firms sell, on average, 60% of their products from their principal insurer. This percentage increases to 80% when the two principal insurers are considered. As well, 10% of firms have 90% of their volume with a sole insurer,” the report says.
Certain commercial practices, such as insurers making loans to brokerage firms, ownership ties and block transfers of clients, tend not to be in the interest of consumers, the report says. As well, it says, brokers who portray themselves as independent are, in fact, subject to incentives “to inject bias into their role as consumer advisors.”
Montreal consumer advocate Jannick Desforges endorsed the upcoming AMF disclosure rules as necessary to protect consumers.
“We’re concerned about the situation,” says Desforges, acting director of Option Consommateur. “A consumer doing business with a broker could reasonably believe the broker will shop around on his or her behalf. But if that broker systematically deals with only one insurer, it’s as if the consumer is dealing with that insurer directly. That must be immediately disclosed.”
Although Desforges couldn’t say whether the close ties between brokers and insurers have made P&C insurance premiums more expensive, she maintains: “The issue is that the consumer doesn’t have all the necessary information to make an enlightened choice.”
An industry spokesman insists there is no evidence that consumers have been hurt by industry practices highlighted by the AMF. The industry remains highly competitive, says Jack Chadirdjian, director, public affairs and government relations, in the Insurance Bureau of Canada’s Quebec offices.
Chadirdjian says the insurance industry supports transparency for consumers and notes the proposed disclosure rules in Quebec are in line with commitments the industry voluntarily adopted in January 2005 to disclose compensation and financial links with brokers.
“We have absolutely no problem with being as transparent as possible in these things,” he says. “That allows the consumer to have the ultimate decision.”
“Everything St-Gelais was mentioning … we have been working on and will implement once things come into force,” he says.
Chadirdjian adds that Quebec consumers enjoy low insurance premiums. He says auto insurance rates have been the second lowest in Canada in recent years and were almost half the rates of those in Ontario in 2004. In the past 10 years, auto premiums have risen 16% vs 18.6% for the cost of living, he says, although he has no statistics for residential P&C insurance.
“We do polling on a regular basis. We receive over 60,000 calls [a year] at the IBC’s Montreal office, and it’s not something we have noticed as being a problem,” he says. “That’s why the Spitzer issue blew this thing in Canada a little bit out of proportion. But the positive thing is it will allow the transparency and show the consumer that there is nothing there,” he said.
In October, Desforges’ association called for the federal Competition Bureau to open an investigation into “anti-competitive and anti-consumer activities” in the insurance industry across Canada.
@page_break@“This industry continues to portray conflicts of interest, secret commissions and steering of customers as good for consumers,” association president Bruce Cran said in a statement. “When an insurance company owns or has a financial relationship in brokerage offices that represent themselves as being independent, and the broker only sells policies from that one insurer, this is misleading.”
The AMF survey of industry participants has been included in a wider review of practices conducted by Canadian insurance regulators through the Canadian Council of Insurance Regulators. In November, the CCIR released a summary of its review, available on its Web site (www.ccir-ccra.org).
The summary states that the review turned up no evidence of criminal activity along the lines of what was occurring in the U.S. But it did find practices and relationships that could lead to conflicts of interest, if not well managed.
“The business practices and relationships in the insurance industry can pose significant risks to the reputation and integrity of market participants,” the report states. “The financial services industry is increasingly aware of reputation risk and the need to manage the risks associated with these relationships and business practices.”
The report notes regulators are pleased with efforts the industry has made to better manage potential conflicts of interest. IE
Quebec rolls out new disclosure rules
- By: Don Macdonald
- January 4, 2006 January 4, 2006
- 10:37