Proposed rule would allow insurers to offer rebates and incentives to Ontarians

Ontario’s insurance regulator is looking for feedback from the public on a proposal to relax the rules prohibiting unfair or deceptive acts, allowing insurers to offer rebates and incentives to consumers under certain circumstances.

“If you talk to insurance companies and look at the restrictions that you have under the current Unfair or Deceptive Acts or Practices (UDAP) Rule, it is very difficult for them to innovate in certain areas,” as Colin Simpson, CEO of the Insurance Brokers Association of Ontario, explained in an interview Thursday.

The Financial Services Regulatory Authority announced this past December it is proposing to replace Ontario Regulation 7/00 [which details the province’s current unfair and deceptive practices rule] with a principles-based approach to unfair or deceptive practices. A 90-day consultation period wraps up Mar. 18.

The proposed new rule, if implemented, would let insurers offer rebates and incentives to consumers under certain conditions. For example, under the new rule, insurers would not be allowed to offer rebates if they would lead to a client to “buy a product which would not, considering the options generally available in the marketplace, be recommended as a suitable insurance product by a reasonable person licensed to sell such an insurance product.”

As it stands, there is pretty much a blanket prohibition on incentives. “Any payment, allowance or gift which is offered as an inducement to any prospective client” is currently consider an unfair or deceptive practice under Ontario insurance law.

This, FSRA suggests, means home insurers cannot offer something like a free plumbing inspection to a client who buys insurance from them.

“Under the current rules, you would really be incentivizing someone to make a choice between product A or product B,” Simpson said in an interview. “What the current rules say is, ‘You can’t do that.’ You have to take product A or B on its own merits and advise the broker or direct writer, or whoever it is who sells the product or advises the clients, [that] they have to explain to the client what the comparable benefits are.”

But Simpson suggests that an insurer offering a free plumbing inspection is not doing the same thing as a broker or agent who offers something like a gift card for a retail shop as an incentive for the client to select a certain insurance product.

“If [an incentive] is directly linked to reducing the risk that is being written, or improving the probability that the home owner is less likely to get water damage, because they are going to give them an inspection on their plumbing and advise them on how to fix any particular issues they may have, then that clearly is a good thing from a consumer perspective,” said Simpson. “So why would it not be allowed if it is to the benefit of the consumer?”

FSRA published its proposed new UDAP rule in December. Stakeholders providing feedback are asked a series of questions, including whether any parts of the proposed new rules are too general or require further detail.

Under the proposed new rules, there would still be restrictions on incentives and rebates. For example, an insurer would not be allowed to offer an incentive “in a manner which involves unfair discrimination or contributes to an anti-competitive practice, including, but not limited to, tied selling or predatory pricing.”

The proposed changes are part of FSRA’s effort to take a more principles-based approach to insurance law. FSRA replaced the Financial Services Commission of Ontario (FSCO) as the province’s insurance regulator in 2019.

It will be interesting to see how exactly the regulator monitors new incentives and rebates, said Simpson.

Feature image via iStock.com/AndreyPopov