New Heights for Regulation

Like it or not, Winston Morris, chair of Canadian Council of Insurance Regulators (CCIR) and assistant deputy minister of commercial and corporate affairs in Newfoundland and Labrador, has found his name in the news quite a bit lately. Public hearings on the province’s Facility Association (FA) have become a sparring ground for insurers, brokers and the provincial regulator. While it is the province’s Public Utilities Board who will hear and make recommendations on the case, Morris has his own take on the situation. The association, which is legislated as non-profit and therefore cannot distribute profits back to member insurers, has been making money in that province. “Those substantial profits should go back to the consumer,” Morris contends. “Consumers obviously paid more into it [the FA] than the risks associated.”

The Newfoundland review is a test case in many respects, as the CCIR has listed among its missions for the future to review the FA and its operations on a national level. Currently Ontario is also engaged in its own review of the FA there, and Morris is eager to see the results of this study which is focussed more on governance and structure than the results of profitability. “The present [FA] structure isn’t transparent in terms of accounting… it’s a cumbersome structure.”

The FA review is also an example of how the CCIR’s struggle for regulatory harmonization is often carried out at the provincial level. As Morris notes, these jurisdictions are always the level at which regulatory change is implemented.

To market, to market

It is not only a question of constitutional law, which dictates that insurance is regulated at the provincial level, except in the cases of federally-incorporated insurers who fall under the mantle of the Office of the Superintendent of Financial Institutions (OSFI), it is also a matter of regional differences, Morris says. “We specifically use harmonization rather than uniformity… we don’t believe you can have identical rules.”

Morris explains that such regulations as minimal capital requirements must be regionally specific to respond to different market conditions across the country. Another limit to harmonization is the number of stakeholders involved in the industry. Beyond the 14 regulators in CCIR (one from each province, territory and the federal regulator), industry associations, companies and consumer groups all bring different agendas to the table. “Balancing all that off, it’s difficult to come to a harmonized approach…it takes time, and it takes the political will [of each jurisdiction’s government].”

This is the case with the CCIR’s new classes of insurance project. After discussions with industry stakeholders, including the Insurance Bureau of Canada, 17 classes (reduced from the former 50) and a streamlined process for introducing new classes of insurance have been developed and circulated for input. The IBC has said it hopes the project will allow companies to get new products to market much more quickly than in the past. While Morris expects the plan to be ratified at CCIR’s spring 2001 meeting, the classes will then be taken home to each province and territory to hopefully make their way into legislation.

Limits aside, the work of the CCIR is moving into the limelight with the increasing emphasis on harmonization. This lead to the creation of a permanent secretariat last year to accomplish the administrative and communication functions of the CCIR. It is also key to the council’s five-year plan, which runs through 2005.

Consumer focus

Increasingly, the goals of the CCIR relate to market conduct, a change from the past, Morris notes, when “a lot of issues related to solvency, governance… these are important, but everything comes back to the consumer.”

All CCIR members are paying close attention to the market conduct rules being developed in new legislation in Alberta and the harmonized Atlantic regulations.

“Market conduct issues are receiving a very high priority… there is a feeling amongst regulators that [existing] legislation didn’t deal with this enough.” The CCIR has first tackled consumer issues on the life insurance side, calling for plain language contracts and fuller disclosure to insurance buyers, but Morris says he expects these same principles will be applied to the p&c side in the future.

Ombudsman debate

A “key consumer issue” currently on the table is the idea of a federal ombudsman, and Morris is among the members of a committee established by the Joint Forum of Financial Market Regulators (JFFMR) to discuss the plan. While the CCIR supports the idea of an ombudsman service, it does not support this service being carried out at the federal level. National standards make sense, says Morris, but the service must be carried out within each jurisdiction in order to be effective. Consumers should not be expected to deal with a remote national body to resolve disputes, he explains. The CCIR has stated its support for providing an ombudsman service as a level of mediation before disputes end up in the court system. Right now, when disputes are not resolved at the provincial level, “the only option we can give is ‘go to court'”, which is financially difficult for most consumers, especially given the low monetary value of many claims.

Looking ahead

Another area where the CCIR is working in concert with other regulators is the in the emerging field of e-commerce. While the federal government and a number of provinces are currently putting together legislation to deal with such issues as electronic signatures and filing, the CCIR has set up its own committee to give guidance. It is also working with the National Association of Insurance Commissioners (in the U.S.) and the International Association of Insurance Supervisors. The two key issues to be tackled, according to Morris, are the security of information and the legality of transactions conducted online.

And, in keeping with the new emphasis on consumer protection, Morris points to recent CCIR involvement with the Property and Casualty Insurance Compensation Corporation (PACICC). The CCIR was responding to PACICC’s plan for coverage of unearned premiums in the event an insurance company fails (previously only outstanding claims were covered). Morris witnessed the effect of company failure when Newfoundland’s Hiland Insurance collapsed five years ago, resulting in the loss of $5 million in unearned premiums. While the plan is a “good start”, the CCIR is encouraging PACICC to increase the percentage covered and to investigate further what other jurisdictions, including the guaranty funds used in the U.S., are covering, he says.

Harmony at home

Morris is no stranger to how the push for harmonization is changing the face of regulation. In his home province, as in Ontario, insurance regulation falls under the same mantel as pensions, securities, credit union, trust company, real estate and mortgage broker regulation. In fact, Morris notes that one of his unofficial functions with the Joint Forum is to be a “conduit” for information for credit union regulators.

Morris has been responsible for insurance and other provincially regulated financial services since 1995, and was formerly director of debt management with the province’s finance department since the mid-1980s. Prior to that he had worked for Manufacturers Life Insurance, Canada Packers, Canada Mortgage and Housing Corp. and later Westviking Community College where he taught economics, accounting and public administration.

As the Canadian Council of Insurance Regulators moves into a new phase of operation, establishing a permanent secretariat and five-year plan, the push for regulatory harmonization has never been stronger, says chair Winston Morris. The CCIR has set its sights on new insurance classes, market conduct and e-commerce. But harmony will not be easily achieved, Morris admits, and the will of the provincial and federal governments will in the end determine the future course of insurance regulation.