Loos­en­ing the rules

Investment Executive - - FRONT PAGE - BY ME­GAN HARMAN

que­bec is poised to give in­surance com­pa­nies the green light to sell life in­surance prod­ucts on­line for­mally. In ad­di­tion, the prov­ince pro­poses to loosen the rules re­gard­ing the sale of cer­tain in­surance prod­ucts — such as mort­gage life in­surance — by in­di­vid­u­als who aren’t li­censed in­surance ad­vi­sors.

Those pro­posed changes, in­cluded in Bill 141: An act mainly to im­prove the reg­u­la­tion of the

fi­nan­cial sec­tor, the pro­tec­tion of de­posits of money and the op­er­a­tion of fi­nan­cial in­sti­tu­tions, have some in­surance in­dus­try play­ers laud­ing the pro­vin­cial gov­ern­ment for mod­ern­iz­ing the rules. How­ever, oth­ers in the in­dus­try are con­cerned that the pro­posed frame­work would en­able more con­sumers to buy life in­surance without ad­vice.

“I’m con­cerned that we could end up with in­di­vid­u­als be­ing hurt through self-di­rected on­line pur­chas­ing of in­surance con­tracts [be­cause they won’t] re­ally un­der­stand what they’re pur­chas­ing,” says Greg Pol­lock, pres­i­dent and CEO of the Toronto-based Fi­nan­cial Ad­vi­sors As­so­ci­a­tion of Canada (a.k.a. Ad­vo­cis).

The long-awaited bill, tabled by Que­bec Fi­nance Min­is­ter Car­los Leitão in early Oc­to­ber, fea­tures al­most 500 pages of pro­posed amend­ments to dozens of laws. The goal of the ini­tia­tive is to mod­ern­ize reg­u­la­tion of the fi­nan­cial ser­vices sec­tor and strengthen con­sumer pro­tec­tion. (See story at the top of page 1.)

As well, some stake­hold­ers sug­gest that the pro­posed leg­is­la­tion is a step back­ward in con­sumer pro­tec­tion.

“The re­ac­tion on the Street is that this regime is quite per­mis­sive,” says An­nick De­mers, as­so­ciate lawyer with Blake Cas­sels & Gray­don LLP in Mon­treal. “There’s some con­cern that con­sumers may not be as well pro­tected.”

Among the most no­table changes im­pact­ing the life in­surance in­dus­try will be a frame­work for the on­line dis­tri­bu­tion of in­surance. Specif­i­cally, the bill pro­poses to mod­ify sev­eral laws sur­round­ing in­surance dis­tri­bu­tion to spec­ify that those laws ap­ply even in cases in which there is no in­ter­me­di­ary of “a nat­u­ral per­son.”

How­ever, the pro­posed bill spec­i­fies that in­sur­ers sell­ing in­surance on­line must pro­vide con­sumers an op­por­tu­nity to con­tact a rep­re­sen­ta­tive for ad­vice, if de­sired.

Life in­surance com­pa­nies are pleased with the new frame­work, says Lyne Duhaime, pres­i­dent of the Cana­dian Life and Health In­surance As­so­ci­a­tion Inc.’ s Que­bec di­vi­sion.

“The bill mod­ern­izes cur­rent laws,” she says. “I think it will al­low the dis­tri­bu­tion of fi­nan­cial prod­ucts to be more flex­i­ble.”

Al­though many in­surance com­pa­nies al­ready sell cer­tain life in­surance prod­ucts on­line, there aren’t any spe­cific rules gov­ern­ing this dis­tri­bu­tion chan­nel be­cause the ex­ist­ing laws re­gard­ing dis­tri­bu­tion have been in place for many years.

The de­ci­sion to in­tro­duce a frame­work for on­line in­surance dis­tri­bu­tion was driven by con­sumer de­mand, Duhaime says.

Al­though some in­surance prod­ucts — such as cer­tain types of per­ma­nent in­surance — are likely to con­tinue to re­quire the ad­vice of a li­censed ad­vi­sor, she says, the In­ter­net pro­vides a fea­si­ble dis­tri­bu­tion chan­nel for many types of in­surance.

“We know that con­sumers want to buy prod­ucts on­line,” Duhaime says. “This will al­low the in­dus­try to evolve with the needs of the con­sumer.”

In­surance ad­vi­sors such as Daniel La Tour in Kirk­land, Que., agree the in­surance in­dus­try must mod­ern­ize — and the reg­u­la­tory frame­work must keep up with those changes.

“New Age tech­nol­ogy brings us new chal­lenges and new ways of do­ing things, and we re­ally haven’t delved into how we’re go­ing to pro­tect the con­sumer,” La Tour says. “We’re fi­nally get­ting around to im­pos­ing con­di­tions on whoever dis­trib­utes fi­nan­cial prod­ucts on­line so it’s not the Wild West.”

How­ever, ad­vi­sors such as Nel­son Hodge, group in­surance con­sul­tant in Île-Per­rot, Que., are con­cerned that the new frame­work will lead to more poli­cies be­ing sold by car­ri­ers di­rectly to con­sumers rather than through ad­vi­sors.

“My sales are go­ing to go down,” he says. “For the in­surance com­pa­nies, it’s a big ex­pense to pay com­mis­sions and re­newals. This could save them a lot of money.”

If pol­icy-mak­ers are go­ing to en­able on­line dis­tri­bu­tion, Pol­lock says, it’s crit­i­cal that con­sumers are made aware of the op­tion — and im­por­tance — of speak­ing to an ad­vi­sor.

“There has to be a lot of di­rec­tion [given] to in­di­vid­u­als who are on­line to think about get­ting ad­vice from a pro­fes­sional ad­vi­sor,” he says.

Bill 141 also pro­poses changes to the laws sur­round­ing the dis­tri­bu­tion of in­surance prod­ucts without a rep­re­sen­ta­tive, in­clud­ing prod­ucts such as mort­gage life in­surance sold by bank em­ploy­ees.

For ex­am­ple, the bill pro­poses to elim­i­nate an en­tire set of re­quire­ments man­dat­ing that a spe­cific dis­clo­sure doc­u­ment, called a “dis­tri­bu­tion guide,” be pro­vided to clients who are buy­ing an in­surance prod­uct without the ad­vice of a li­censed ad­vi­sor. That doc­u­ment must in­clude spe­cific de­tails about the in­surance prod­uct, such as ex­clu­sions and de­tails about the claims process.

Al­though Bill 141 spec­i­fies that in­sur­ers still must en­sure that clients buy­ing in­surance without the in­volve­ment of an ad­vi­sor are pro­vided with spe­cific in­for­ma­tion about the cov­er­age they’re buy­ing, the bill di­als back many of the pre­scrip­tive dis­clo­sure re­quire­ments that ex­ist.

The elim­i­na­tion of those rules came as a sur­prise, De­mers says: “I did not ex­pect that [the bill] would com­pletely re­move those obli­ga­tions.”

The prospect of a looser frame­work for the sale of cer­tain in­surance prod­ucts is a con­cern, Pol­lock adds: “We gen­er­ally have a con­cern when there are dif­fer­ent reg­u­la­tory re­quire­ments for dif­fer­ent groups of in­di­vid­u­als sell­ing sim­i­lar if not iden­ti­cal prod­ucts.”

There­fore, Pol­lock be­lieves, all in­di­vid­u­als sell­ing life in­surance prod­ucts should be re­quired to have the same level of li­cens­ing.

The prospect of bank em­ploy­ees sell­ing in­surance with fewer re­quire­ments is of par­tic­u­lar con­cern in light of me­dia re­ports re­veal­ing high-pres­sure sales tac­tics used at some banks, La Tour says. “We hear about pres­sure sell­ing and hav­ing to meet sales quo­tas,” he says. “That’s not the way to go, be­cause the con­sumer re­ally doesn’t have the op­por­tu­nity of re­view­ing his or her needs.”

Duhaime sus­pects that if Bill 141 is adopted, the cor­re­spond­ing reg­u­la­tions could in­clude more spe­cific re­quire­ments in this area.

“We have noted that all ref­er­ences to the dis­tri­bu­tion guide have been re­moved, but we might have reg­u­la­tions that will [in­di­cate] how it will work,” she says. “At this stage, we’re not clear.”

“The re­ac­tion on the Street is that this regime is quite per­mis­sive”

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