Promoting Risk Assessment

The Canadian insurance industry has expressed preliminary support for a regulators’ proposal that would give insurance companies privilege over documents created for the purpose of self-assessing their own risk.

The Canadian Council of Insurance Regulators (CCIR) said the plan to allow insurers to create internal risk-assessment documents that won’t come back to haunt them in civil litigation is part of a broader effort to move towards risk-based regulation.

The proposal would extend privilege over “documents generated as a result of an evaluation, assessment, audit, inspection or investigation conducted by an insurance company either voluntarily or at the request of a regulatory authority for the purpose of identifying or preventing non-compliance with, or promoting compliance with, statutes, regulations and regulatory guidelines.”

The CCIR’s move to confer privilege is part of a regulatory package that includes proposed protection for whistleblowers. Under the proposal, “whistle-blower protection would protect whistle-blowers against retaliation by way of civil action for making the disclosure. This is immunity from liability to pay damages.”

The proposals are contained in the CCIR’s Discussion Paper on Privilege and Whistle-blower Protection, posted on the CCIR’s Web site. The CCIR collected submissions on the paper in February and will be using March to summarize the comments it has received. The CCIR is expected to review the results of the consultations during its April 6 and 7 meetings.

IBC POSITIVE

Jane Voll, the vice president of policy development and chief economist at IBC, said the IBC had conducted half of its consultations on the CCIR paper as of press time. But the preliminary reaction of the industry appeared to be overwhelmingly positive.

“In terms of the actual privilege itself, the industry thinks the CCIR got it right with the wording that they’re proposing,” Voll said. “It’s the right protection that, if it found its way into legislation or regulation, would do a pretty good job for doing what it’s supposed to do. It doesn’t leave too many holes.”

Voll said insurers would be asking for only one amendment to the privilege proposal. “If the regulator plans to share privileged self-assessment information with other parties, [the IBC would ask the regulator] to inform the insurer that they’re doing so,” Voll said. “That’s not currently in the wording, but that’s something that the industry would appreciate.”

Grant Swanson, chair of the CCIR committee that drafted the proposals, said privilege is a key component of moving towards risk-based regulation.

“The whole concept of risk-based regulation has started in the solvency regulation field, which adopted the view: What are the risks affecting the business? How is the company managing those risks? In other words, are the directors aware of what those risks are? Have they put into place a strategy, and does the strategy make sense? So in essence the role of the regulator is that of a supervisor, as opposed to the role of the regulator being that of an examiner…

“There can be…different ways that a regulator would assess the risk in an organization. A well-run organization would be an organization that has established policies and procedures and is monitoring those policies and procedures. That would imply that they are doing critical self-assessment. So as part of our assessment and something that we want to see happen, we want to encourage that kind of behavior [by granting privilege over those self-assessments].”

Harold Geller, a member of the Ontario Bar Association’s insurance law committee, agrees privilege is a necessary piece of the CCIR’s move towards risk-based regulation. “There would be a best practices chill if insurers that took these pro-active steps were to be hoisted on their own petard for having done these steps,” the Ottawa lawyer at Milton Geller LLP said. “The concept of privilege that is being brought forth in this paper is very protective of the insurers and is arguably a good step.

“The reason why I say ‘arguably’ is that it depends upon whether or not insurers are going to bare all or not.”

Voll said it’s a given that as soon as insurers have privilege over certain information, companies are more forth- coming in sharing that information with regulators.

WHISTLEBLOWERS PROTECTED?

But will whistle-blowers be more forthcoming as a result of the CCIR’s proposals? Geller doubts it. He noted the proposals only go as far as protecting a whistle-blower from civil liability from a company bent on recovering damages as a result of leaked information. But there are many other ways of retaliating against whistle-blowers, as both Geller and the CCIR consultation document note.

“A whistle-blower might lose his or her employment if employed by the wrong-doer,” the CCIR consultation paper noted. “An agent or broker might lose his or her contract with an insurer if disclosing information about an insurer wrong-doer. Although these latter types of retaliation can cause financial harm to the whistle-blower, regulators are not considering more than the provision of immunity [against liability for damages].”

The result, Geller said, is a proposal that is a boon for insurance company legal counsel, but could be beefed up on the consumer protection side. “Fundamentally, [whistle-blowers] are at risk,” Geller said. “If they report, they are at risk, because whatever we think about the protection that absolute privilege gives [to whistleblowers], no one really believes – certainly the whistleblowers that I’ve dealt with, and there were only two – that there was any true protection; that the information [about their role] didn’t get back to their employers.”

Voll said the IBC has only one issue with the CCIR’s whistle-blowing protection aspect, and that relates back to the question of privilege. “The only recommendation the industry seems to be proposing here, and it may just be an oversight on the part of the CCIR, is privilege protection for the information that comes forward from a whistleblower,” Voll said.

“The thinking in the industry is that it doesn’t matter whether [the regulator] gets [the information] from the front door or the back door, [the information] is to help the regulator and there should be privilege protection for the people who bring it forward.”