What new customer treatment guidance could mean for brokers

Culture is key. That’s the upshot of a new Canadian Council of Insurance Regulators (CCIR) report providing insights into how governance and business culture relate to Fair Treatment of Customer (FTC) reviews.

“The development of a culture of fair treatment of customers is essential within the industry, and we hope that the impact will be felt by customers,” says Nathalie Sirois, CCIR vice-chair and senior director, prudential supervision at the Autorité des marchés financiers. “This will have an influence at all levels, particularly on the behavior of employees and external resources.”

The report this week, Governance and Business Culture in terms of Fair Treatment of Customers CCIR Report – Consolidated observations, recommendations and good practices, stresses that establishing an FTC-centric culture fosters customer confidence and long-term customer relationships.

As such it shifts focus away from “short-term financial goals that could cause serious harm to customers and damage the insurer’s reputation to the point of having an adverse impact on solvency,” the report reads.

In terms of how insurers are implementing FTC guidelines, the report observes, “The insurers had not always defined or documented FTC roles and responsibilities for senior management.”

Among insurers that had documented the roles, in 24% of cases the responsibilities needed to be better defined. “Specific FTC roles and responsibilities were not always clearly defined and documented by all insurers,” the report reads. “High-level responsibilities were mentioned in some cases, but without any further details, such as responsibility for ensuring the application of FTC principles.”

And, while responsibility for ensuring adherence to the FTC policy, code of ethics, or code of conduct was generally specified in the policy or code, “insurers had not formally assigned or defined this responsibility.”

 

Possible impacts on brokers/agents

The June 2024 report builds on 2018 guidance from CCIR and the Canadian Insurance Services Regulatory Organizations (CISRO). That guidance called on insurers and brokers/agents to put customers first and give them clear, non-misleading information at the point of sale and afterwards to ensure clients can make informed decisions.

Other elements of the 2018 guidance called on insurers to report if brokers/agents with whom they work may not be suitable or properly authorized. This could include:

• Identifying if certain brokers/agents or particular issues are subject to regular or frequent complaints, and
• Reporting recurring issues that are relevant to the regulator’s assessment of those brokers/agents.

CCIR and CISRO also said they expect insurers to “have effective systems and controls in place and communicate clear strategies for selecting and managing arrangements with intermediaries as part of their overall distribution plan [and] to assess…that they are authorized and have the appropriate knowledge and ability to conduct insurance business and have appropriate governance policies and procedures with respect to fair treatment of customers.”

 

Culture concerns

Like the latest report, the 2018 guidance also called on the industry to “establish and implement policies and procedures on fair treatment of customers, as integral parts of their business culture.”

That emphasis on business culture is consistent with an emerging trend whereby regulators are exploring conduct guidelines beyond the scope of financial wrongdoing.

During 2022’s National Insurance Conference of Canada, presenters described efforts by the Office of the Superintendent of Financial Institutions (OSFI) to establish guidance for business culture metrics as “a solution in search of a problem.”

During that 2022 conference, Fasken partner Koker Christensen said OSFI’s regulatory initiative around culture is part of a broader effort by global financial regulators to recognize more intangible influences on an organization’s financial results. “The focus on non-financial risks is kind of a mega-trend in insurance regulation,” he said at the time.

 

Feature image courtesy of iStock/AlexeyGorka