Future REGULATION in Ontario–an industry perspective

Insurance regulation is required to protect the interests of consumers. As our industry evolves, calls for common standards and a ‘level playing field’ for the industry continue. When considering changes and new regulatory structures, I believe we would be well served to look at RIBO, its growth and successes as a model for future regulation.

To discuss the future of regulation applying to the distribution of property and casualty insurance in Ontario, it is necessary to understand the history behind the formation of the industry’s self-regulation body, the Registered Insurance Brokers of Ontario.

RIBO was created in October 1981 with a “code of conduct” stating, “professionals are recognized not only for their skill or experience in a particular field or activity. Their status also stems from their character and their standards.”

It is based on this principle that RIBO embraced the responsibility to protect both the public and guide the broker profession. To ensure fairness of the system, RIBO has several established committees overseeing the various aspects involved in the interchange and relationship between brokers and consumers. RIBO’s council acts as a board of directors and establishes policy for the administration of the Registered Insurance Brokers Act (RIB). It is made up of nine elected insurance brokers and four public members. The council has three statutory committees being the “qualification and registration committee”, the “complaints committee” and the “discipline committee”. The RIBO committees carry out the following duties:

– The qualifications and registrations committee exercises a judicial function. It determines the eligibility and sets competency standards for brokers. The Q&R committee also researches and recommends policy, and develops the “broker skills reports” for all levels of registration. The “skills report” forms the basis for education and is used for accreditation of all continuing education.

– The complaints committee is composed of two brokers and one public member. This committee exercises an administration function as opposed to a judicial one because it does not make final decisions affecting brokers. The complaints committee reviews the merits of complaints and determines if the matter should be referred to a discipline committee. In most instances complaints are resolved with a few phone calls and require no further action.

– The discipline committee only hears complaints which cannot be satisfactorily concluded by other means. A hearing of the discipline committee is conducted similarly to civil court proceedings, with testimony given under oath and recorded by a court reporter. The same rules of evidence that apply in court are followed. The committee has the power to reprimand, impose a fine, require special financial reporting, require attendance at educational courses, suspend, restrict or revoke a license.

Regulatory issues at hand

Currently, the provincial regulator, the Financial Services Commission of Ontario (FSCO), has raised two main issues impacting on the future of the brokerage market: “sole occupation” and the “ownership” of firms.

RIBO has held member forums throughout the province over the past several years to gauge opinion on these issues. Feedback from broker forums suggests that the profession should be able to sell a variety of financial products. However, consensus among brokers is that certain occupations create a conflict of interest. If sole occupation is removed and no restrictions are placed on occupation, product and service offerings, there is concern that conflict of interest and undue influence will be placed on the consumer. Many brokers also believe that the current ownership requirements should be removed, provided that the accountability of principal brokers for all RIBO requirements is maintained.

Setting the future stage

RIBO’s success as a self-regulating body leads me to ask, “can the RIBO model be applied to the regulation of other intermediaries in the insurance industry?” I believe the answer is “yes”. Members of the general public should expect equal protection and recourse regardless of the method of insurance distribution. If a consumer has an uninsured claim, or feels a policy was misrepresented — who should they call? Current divisions of regulation by different bodies can be confusing for consumers. Access to different regulators can be difficult for the consumer, and the level of consumer protection may differ depending on the type of intermediary involved.

In FSCO’s discussion paper on insurance distribution released last year, a number of guiding principles were outlined. These include:

– A regulatory system must provide the least restrictive and least expensive regulatory alternative necessary to achieve consumer protection goals.

– Consumers are entitled to the same protection regardless of the method of insurance distribution.

– A regulatory system must provide timely, open and efficient administration and enforcement.

– A regulatory system should facilitate sound and reasonable harmonization of standards and policy developments, and coordination of activities with other regulators.

– A regulatory system should maintain an appropriate balance between protecting consumers and a fair and competitive marketplace.

– A regulatory system must be sufficiently flexible to deal with the emerging market development in the types of financial service providers, the way they carry on business and the products and services they offer.

I would also suggest that a successful regulatory structure should provide the following:

– Clear consumer protection.

-Coordinated regulation.

– A level playing field.

– Easy access by registrants and consumers.

– Neutral regulation and consistent enforcement.

– A forum to discuss harmonization.

– The flexibility to adapt to the future.

– Less legislative delay.

Building on a platform

Building on the RIBO model, a new regulatory structure for insurance distribution could be developed that would address many of these goals. First and foremost, if there is to be meaningful change to regulatory structure, there must be changes to the regulator’s authority to make and change rules.

FSCO, like the OSC before it, should evolve toward responsibility for the big regulatory picture in insurance distribution with the capability to address issues quickly and effectively as they arise. FSCO would shift from direct regulation of intermediaries to effective oversight of self-regulatory organizations, with rule making authority.

The self-regulatory concept of RIBO could be extended to each similarly situated group of intermediaries. An independent Self-Regulating Organization (SRO) could be established for each sector, mirroring the authority, structure, and composition of the RIBO council and committees. A common council could be established composed of members of each SRO and appointed public members to discuss common issues and harmonization. Each SRO council would provide peer review and responsibility for the qualifications and conduct of its own registrants but remain consistent with the other sectors through the common applications of the rules enforced by a single administrator. This would serve to create a “single window access” for multi-licensed individuals and all consumers with a complaint issues. Similarly complaints would be routed to the appropriate sector and processed through an investigation, complaint and discipline system similar to the RIBO system for brokers.

Cost-effective model

As RIBO has demonstrated, self-regulation can be a cost-effective method serving both the consumer interest and the regulatory needs of the industry. The RIBO concept of regulation is based on a model where many of the on-going regulatory requirements are placed on a licensed firm. Each licensed firm must have one properly qualified individual to act as its “principal broker”. The principal broker is an individual who is held accountable to the governing body for ensuring his or her firm meets its regulatory obligations in compliance with the l aw.

Individuals first registering as insurance brokers are restricted to “acting under supervision”. It is therefore the responsibility of the principal broker to ensure that proper supervision and ongoing training is provided to all individuals sponsored by the firm. This concept should be considered for other sectors.

The public is entitled to the same protections regardless of the method of distribution. Any entity distributing insurance by any means in Ontario would be subject to the registration system and the same rules. Under the RIBO model, regardless of sector, each licensed individual, firm and principal intermediary are answerable to the governing body and subject to having their privilege to carry on business as an insurance intermediary in Ontario revoked by a judgement of their peers.

For the past 20 years, RIBO has successfully addressed the needs of both members and consumers alike. I believe our track record as a self-regulating body speaks for itself, and I am confident that RIBO could be expanded to regulate other similar sectors.