Surviving Self Regulation

When the Registered Insurance Brokers of Ontario (RIBO) opened its doors as the designated self-regulatory body for Ontario general insurance brokers in 1981, no one quite knew what to expect. At the time, self-regulation was a popular concept with Bill Davis’s Progressive Conservative government, but it remained uncharted territory. Doctors and lawyers, sure, but what about other “intermediaries”?

Jeff Bear counts himself among the group who did not quite know what to make of RIBO in the early years. Faced with adversarial relations with broker trade associations and the then provincial regulator, the Ontario Insurance Commission, he says the first job was to develop an effective model for self-regulation. This had to be based “on fairness, efficiency and consumer protection”.

“We wanted brokers to understand that we are not the ‘Gestapo,’ but, at the same time, we are not a trade association either, advocating on their behalf,” says Bear. “It took awhile for that message to get through.” Bear was one of the first to join RIBO in a full-time capacity. Starting out as a lawyer in private practice in 1977, he was hired in 1984 as inhouse legal counsel. Bear played a pivotal role in setting up many of the licensing, disciplinary and regulatory processes that would govern Ontario property and casualty insurance brokers. The structure of RIBO was designed in those formative years – from qualification and registration to professional development to complaints and investigation. Several committees, comprised of volunteer brokers, work with RIBO staff to ensure brokers are properly regulated, and that consumers are protected. “To the credit of the staff at the time and many of the brokers who have sat on our board, these procedures are still in place and continue to operate effectively today,” says Bear.

EVOLUTIONARY RELATIONS

The self-regulatory model worked, but it was not an immediate hit with broker trade associations. Ironically, it was broker representatives of the Toronto Insurance Conference (TIC) and the Insurance Brokers Association of Ontario (IBAO) who made the initial pitch to government for self-regulation. Bear ascribes the sometimes “adversarial” relationship between broker associations and RIBO in those early years to a “number of possible factors – it could have been different personalities, a perception that we were being too hard on some member brokers or that the process was overly bureaucratic.”

These initial squabbles have smoothed considerably over the years, says Bear, who took on his current role as CEO in 1995. He says RIBO currently has “excellent relationships with both the Ontario and national broker trade associations. These relationships are important to us, and have helped us immensely in our jobs. It’s important that we work together, even though our interests may not always coincide.”

RIBO experienced a similar evolution in its relations with the Ontario financial regulator. Bear says “I think there were some growing pains in terms of what our roles were. We also have had to fight against the perception that, because we are a self-regulatory body, somehow we are not as tough on insurance brokers. I think we have done that through fairness, efficiency and professionalism. We certainly don’t hear any complaints coming from the Financial Services Commission of Ontario (FSCO) today. And we work very closely with them on a number of issues.”

COMPENSATION FACTOR

RIBO’s self-regulatory model has been tested over the years, and the recent announcement of a probe into the volatile area of insurer-broker compensation agreements will surely test it again. In the wake of New York Attorney General Eliot Spitzer’s civil lawsuit against Marsh & McLennan for alleged bid-rigging, Canadian regulators are now responding with a review of the relationship between intermediaries and insurance companies.

Bear is a representative on the recently announced government-sponsored committee to investigate “market practices” in the insurance industry. The committee, established in late October of this year, will be coordinated on a national level by the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organization (CISRO), which includes regulators of insurance intermediaries across Canada. “I think this [compensation agreements] will become a spotlight issue,” Bear says. “We are all going to take a look at the things that are coming out of the investigations in the U.S. and we are following the matter closely. We have to determine what the implications are for the way business is conducted in Ontario and across Canada.”

NEW ENVIRONMENT

Through his roles as RIBO’s chief executive and CISRO member, Bear is familiar with working with regulators across Canada on distribution issues. One of the main challenges for regulators today is reducing the barriers for brokers wanting to do business in other provinces. Bear says a priority for broker regulators is harmonizing licensing, registration and continuing education so that “brokers operating in ten different provinces won’t have ten separate rules and requirements.”

Another big issue for brokers in Ontario is the much-hyped “customized” auto insurance policy that the Liberal government has floated. Brokers in the province have reacted negatively to the so-called “buy-down” option, which has not made its way into formal legislation. Bear says it’s “too soon to tell” exactly what kind of changes the Liberals will bring in and what it will mean for brokers. “We still don’t know the details. It’s a big project to change auto insurance and they [the Liberal government] have to make sure it’s done properly.”

CONSUMER IRE

One of RIBO’s most visible roles in the public eye is handling complaints about brokers. And Bear says it is not surprising that the hard market environment of the past three years has spawned an increase in phone calls. Over the past year, RIBO received more than 1,800 “telephone complaints, with 269 files requiring investigation by RIBO staff. This compares to 210 complaint files in 2002/2003”, he observes.

While many of these calls relate to rising auto insurance premiums (an area RIBO doesn’t regulate), Bear says there has been an increase in complaints about service. “It is perhaps natural in a hard market that brokers may be busy remarketing accounts or simply finding a home for hard to place business,” he notes. “This can lead to a decline in the level of service, and we take any consumer complaints in this area very seriously. People have a right to expect a consistent level of service across the province.”

When it comes to broker regulation, Bear says RIBO has the disciplinary power to revoke licenses and even issue fines, but the preferred method is one of educating brokers about appropriate conduct. An example is how brokers manage trust funds on behalf of their clients. In the 1980s and 1990s, Bear says RIBO saw a number of discrepancies in the way trust funds were reported on financial statements, which led to complaints and investigations. RIBO addressed the issue through random spot checks at brokerage offices throughout Ontario. “Right now, over a three or four year period, we are in every brokerage’s office across the province, Bear notes. “Our financial examiners have been excellent ambassadors, educating brokers about proper financial reporting and putting them on ‘the right path.” Today, the ratio of complaints about trust funds has declined considerably, he adds.

WHOLESALE FACTOR

When it comes to regulation of wholesalers, there has been less progress. Ontario is the only province that does not explicitly license wholesalers. Negotiations with FSCO have been ongoing over several years. “The main reason for the delay is that sometimes wholesalers act as a broker and sometimes they act more as an insurance company,” Bear comments. “We are looking at ways to regulate the former, and I think we are close to that right now.”

There have been unfortunate examples of fraudulent unlicensed wholesale activity in Ontario’s market and in other regions across Cana da. As such, Bear says it is time to require licensing and registration for all sellers of insurance in the province and to step up enforcement of fraudulent schemes. “We need the legal authority to go after these people and we are moving in that direction,” he stresses.

COMBINED EFFORT

As one of the first “out of the blocks,” RIBO has served as an example and potential model of self-regulation to many of the groups that followed in the late 1980s and 1990s – from real estate agents to financial advisors. Its success is shown in its longevity through successive changes in political government, from PC to Liberal to NDP, and back again.

Bear’s tenure at RIBO has been an equally steadying force over the past 20 years. Proud of the organization’s perseverance, he offers his praise to the staff and broker volunteers who have served on numerous boards. “Our role is to regulate the profession fairly and efficiently and to protect the consumers. I don’t think our model has changed significantly over the years. But I do think we have become better at doing our jobs.”