Insurance regulators are expected to move forward this spring on two regulatory initiatives to review market practices and to provide protection for whistle-blowers.

The review of insurer, broker and advisor market practices will be undertaken by the Industry Practices Review Committee, established by the Canadian Council of Insurance Regulators and the Canadian Insurance Services Regulatory Organizations to examine how the insurance industry manages conflict of interest.

The IPRC will be looking to see that three principles it put forward, after a year of sometimes tense consultation with industry associations, have been implemented. Those principles are: putting the client’s interests first, disclosing conflicts of interest and ensuring product suitability.

“We’ll be looking at the day-to-day actions of advisors,” says Grant Swanson, executive director of licensing and market conduct at the Financial Services Commission of Ontario and chairman of the IPRC. That doesn’t mean on-site audits will be conducted, he adds. It’s more likely that the IPRC will be making document requests.

Meanwhile, the IPRC will be looking at the governance practices of insurers. It will want to see how the three principles have been incorporated into procedure manuals, staff training and conflict-of-interest reporting forms.

The IPRC is planning to hold round-table discussions with insurers, says Swanson. The committee wants to know how insurers “plan to make the principles work.”

The IPRC will present its implementation review process for approval when the CCIR and CISRO hold their joint spring meeting at the end of March. The review should begin in June and continue for about six months.

Efforts to examine the way the Canadian insurance industry handles conflict of interest began in mid-2005, after Eliot Spitzer, then New York State’s attorney general, cracked down on fraudulent bid-rigging in the U.S. insurance industry.

By the time the IPRC released a third discussion paper in February 2006, it conceded it hadn’t found any wrongdoing in the Canadian life and health insurance industry.

In June 2006, Swanson sent out a letter stating that no further papers were planned. However, he did promise continued monitoring and an “implementation review.”

The IPRC consults with a working group involving the Canadian Life and Health Insurance Asso-ciation, the Independent Financial Brokers of Canada and Advocis.

“They seem to be taking the principles to heart,” says Swanson. “It doesn’t look like only lip service is being paid.”

He commends the efforts made by industry and advisor organizations, such as the November 2006 launch of Advocis’s Web-based best-practices manual.

Advocis reminds its members of the importance of adopting the three principles, says Sara Gelgor, Advocis’s vice president of regulatory affairs.

“We’re waiting to see what the IPRC will be looking for,” says Susan Allemang, the IFB’s director of regulatory practices. “Presumably, they’ll provide the working group with some advance information, so we can provide the IPRC with some feedback on the process.”

Swanson is also chairman of the CCIR/CISRO working group that is struggling with a second initiative — proposals for privilege and whistle-blowing — two aspects of a developing approach to insurance regulation known as “risk-based self-assessment.”

Under risk-based regulation, insurance companies are expected to perform self-assessments and report any risks that must be corrected and monitored by the regulators. The purpose of this regulatory shift is to allow regulators to focus their supervisory attention on higher-risk companies and pay less attention to low-risk companies.

The proposed privilege protection is intended to protect insurers from litigant requests for the documents created as part of the risk self-assessment process.

Whistle-blowers volunteering information about wrongdoing by an insurer, insurance agent, broker or adjuster to a regulator or relevant government body would receive protection from civil liability. (For more details, go to www.ccir-ccrra.org/CCIR/publications/index_en.htm.)

The initial privilege and whistle-blower proposals were released at the end of 2005, and comments were submitted in February 2006. While industry participants generally are supportive of these initiatives, they have received pointed criticism from the Canadian Bar Association, which says providing insurers special privilege protection “unduly deprives” customers of their rights to documents relating to a claim. IE