Provincial Regulatory Harmonization: Cutting the RED TAPE of classes

Is a new subsidiary, new product or policy form on the horizon for your company? If so, better be prepared for slippery target dates. Lengthy delays in licensing can occur when companies or their brokers develop new products which don’t fit into existing definitions, or when the anticipated volume of business is so low that it is not economically feasible to develop a full blown business plan with actuarial attestation, or when out of date legislation gives rise to technical problems that all agree are not significant but which can’t be ignored because of the wording of the law.

And, of course before getting the changes in place across the country, you may face the general problem of having to satisfy almost a dozen different jurisdictions with regard to license requirements. The good news, however, is that insurance superintendents across the country are as fed up as insurers with these kinds of problems.

Even better news, is that concern has been channeled into action. Jim Hall, Superintendent of Insurance for Saskatchewan, is leading a project to take a look at the classes of insurance. Sharing the task with Hall are the superintendents of Nova Scotia, Quebec, and British Columbia, as well as representatives from the Office of the Superintendent of Financial Services (OSFI) and the Insurance Bureau of Canada’s (IBC) vice-president of policy development, Paul Kovacs. A half-a-dozen insurance company representatives have also been brought on-board in an industry advisory capacity for the project.

According to Hall, “we see this as a win-win initiative. At the end of the day, we expect to have fewer resources tied up on issues of minor consequence to insurance consumers, and more time to focus on the things that really matter. This will make us more effective at what we’re ultimately here to do.”

From class to loss

This summer the “classes insurance project team” met by conference to reassess why we have classes of insurance anyway, and how valid regulatory concerns could be more efficiently addressed. The team has already produced a paper outlining the problem and some history, as well as tables showing the different definitions and different types of insurance in legislation and regulation in each jurisdiction across the country. Work is moving forward quickly to scope out potential options and to find room on legislative agendas to move related laws and regulations into one place where new, uniform definitions and procedures can be more easily introduced.

There are many ways this project could wind up. Insurers on the advisory group have suggested that the concept of classes should be turned on its head. Rather than trying to license different causes of loss (fire, hail, wind, theft), perhaps we should focus on the sorts of losses that can result (loss to property, loss to financial wellbeing, loss to health etc.).

Lawrie Savage, who is serving as consultant to the project, has published his own thoughts on this issue, and has supported similar ideas. Others have suggested that the project team look to prudent person provisions in the investment regulations, or at the way reinsurance is supervised to see what principles could be carried over into the licensing area. A key consideration in assessing any alternative will be its capacity to allow superintendents in different jurisdictions to rely with confidence on the regulatory decisions of other jurisdictions, and eliminate the need for repeat analyses and decisions in each province. It will take craftsmanship, to respect provincial authorities and provide for greater harmonization and efficiency in a single brush stroke.

Move steadily

Paul Kovacs, Vice-President of Policy Development at IBC suggests we “push the envelope on this one a bit”. In his view, the classes project should consider the scope for moving towards a corporate governance approach. “If not in this round of reforms, then at least, taking steps now so that we can credibly consider this option next time the issue comes forward.”

Kovacs, and a half-dozen industry CEOs, have been working for the past three years to help bring about greater efficiency and harmonization within the insurance regulatory system and to promote a greater role for self-regulation. The Committee has advocated for more reliance on corporate governance processes and the development of standards of sound business and financial practices. Under a corporate governance approach, an insurer could receive a general license to do business, and the board of directors would determine what lines of business the company would write. A standard of sound business and financial practice could be developed to guide boards as to the type of considerations to take into account, and the sorts of policies and procedures that should be in place. “Banks get a license to be a bank, and directors decide the mix of corporate lending, personal lending, investment banking and other business that makes sense. Maybe it’s time for this concept to find its way to insurance. This is what we’re advocating on the solvency-regulation side,” says George Cooke, president of Dominion of Canada General Insurance Co. and a participant of the regulatory committee. “We should consider what a more corporate-governance based approach would look like for market conduct issues as well.”

Significant achievement

Stuart Kistruck, CEO of Pilot Insurance and chair of the IBC Effective Regulation project reports that the effort on the classes of insurance project is just one example of the good will and good work that has been evident on this file over the past three years. Citing the Committee’s Progress Report, Kistruck points to close to 100 specific regulatory initiatives that regulators have brought forward, in many cases on their own account, to simplify, streamline and harmonize the regulatory system. “Some of these look like very minor changes,” he notes, “such as Saskatchewan’s changing the ‘red-ink’ clause to ‘red-ink or bold type’. Taken together, though, they add up to real bottom-line savings for property and casualty insurers.”

Regulatory reform is arguable one of the more technical, and less glamorous issues taken on by IBC in recent years. Unlike IBC’s work to halt bank powers in insurance, or prepare for Y2K, you will not be able to monitor progress on this file with a scan of the paper or evening news. But at eighty efficiency improvements, and more on the horizon, those close to the file are sure that if you did catch an update on the front page of the Post, you would be pleased.

*Suggestions for enhancing insurance regulation efficiency and harmonization are invited at IBC’s web-site or by e-mail to streamline_online@ibc.ca.