Canada: Fair Treatment Of Customers: Results Released From The CCIR's Cooperative Reviews Of Canadian Insurers

The Canadian Council of Insurance Regulators ("CCIR") has released its Fair Treatment of Customers ("FTC")  Consolidated Observations Report (the "Report"). The Report summarizes the findings of recent FTC reviews of Canadian insurers by the CCIR and individual jurisdictional regulators. The Report also includes generalized versions of recommendations that were provided to the applicable insurers.

Background

The Report assesses the current state of the FTC principle across the industry, establishing a reference point for assessing future progress. Based on reviews conducted between 2017 and 2021, it supplements the September 2018 guidance Conduct of Insurance Business and Fair Treatment of Customers ("FTC Guidance"), a joint publication of the CCIR and the Canadian Insurance Services Regulatory Organizations ("CISRO"). The FTC Guidance set out expectations for the conduct of insurance businesses across the product life-cycle that would satisfy the FTC principle (see our previous Stikeman Elliott update).

The Report indicates that while the joint FTC reviews have to date focused on the individual life insurance line of business, CCIR members have also carried out individual FTC reviews in their own jurisdictions. In general terms, the results and recommendations contained in the Report appear to pertain more closely to the life and health (L&H) insurance agent distribution channel than the property & casualty insurance (P&C) independent insurance broker channel, although the Report indicates that the common observations and themes in the joint and individual FTC reviews can be applied to both the L&H and P&C sectors.

Each of the joint and individual FTC reviews aims to understand insurers' commercial practices in preventing consumer harm, and supports:

• adopting FTC principles throughout the entire product life-cycle and consumer journey;
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• establishing the right tone at the top, which sets the organization's FTC corporate culture and values;
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• building strong agent onboarding, training, and supervision programs that put consumers' needs first;
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• providing adequate information to consumers at different stages of the sales process, and
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• handling claims and complaints in a fair and efficient manner.

Topics Considered in the Report

The Report considered the following seven areas of review, each as discussed in greater detail below:

• Corporate governance and culture;
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• Agent training and outsourcing/delegating arrangements;
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• Incentive management and remuneration structure;
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• Product design, marketing, and advertising;
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• Information provided to consumers;
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• Claims examination and settlement; and
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• Complaints examination and dispute settlement.

Corporate governance and culture

The FTC Guidance establishes the expectation that FTC will be a "core component of the governance and business culture of insurers". The reviews specifically assessed:

• Roles and responsibilities, recommending clearer definition of FTC-related roles and duties, with appropriate authority for FTC-related functions to be carried out effectively.
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• Policies and procedures, recommending implementation of regular reviews of policies and procedures to deal with FTC risks and the implementation of FTC-related policies by insurers that have not yet done so.
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• Reporting on FTC objectives, recommending that senior management be provided with a "more holistic" view of progress toward FTC objectives on an organization-wide basis.

In addition, it was recommended that insurers inform agents of changes to the insurer's Code of Conduct and have them periodically review and acknowledge the Code.

Agent training and outsourcing/delegating arrangements

Ensuring that intermediaries understand the insurance products and the target market is another key recommendation of the FTC Guidance. In this area, the reviews resulted in the following recommendations:

• Review of contracts with intermediaries: Insurer contracts with intermediaries should be reviewed and updated, if necessary, to ensure that they include detailed expectations about roles and responsibilities, notably those that are outsourced or delegated.
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• Monitoring of delegated training: Processes should be established to ensure that independent agents are taking the training that they are offered and that appropriate support and follow-up are being offered.

In order to achieve these goals, proactive monitoring of intermediaries who are training agents is recommended.

Incentive management and remuneration structure

One important expectation of the CCIR and CISRO in the FTC Guidance, is that FTC outcomes should be factored into insurers' performance evaluation, compensation schemes and incentive programs. Two recommendations in the Report followed from that:

• Incentive program design:  Qualitative criteria based on FTC should be incorporated into incentive programs, including as to be guided by incentive management guidance that the CCIR is currently developing.
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• Monitoring of intermediaries' incentive programs: Supervision of intermediaries' incentive programs, currently nonexistent or weak, must be improved so that insurers are aware of how sellers of their products are being incentivized with respect to FTC.

Insurers should also be proactive in identifying, avoiding and managing conflicts of interest ("COIs") and creating and communicating appropriate COI policies and procedures.

Product design, marketing, and advertising

Accurate, clear and non-misleading advertising is another of the expectations set forth in the FTC Guidance. The CCIR review process resulted in these recommendations:

• Review of marketing materials should be carried out according to a formalized ongoing process, a practice that the review process found at only a minority of insurers.
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• Product design and marketing should incorporate FTC components to ensure that consumer needs are met.

As noted in the FTC Guidance, the insurer's responsibility for providing accurate, clear and non-misleading marketing material includes the material provided to intermediaries.

Information provided to consumers

A core expectation of CCIR and CISRO is that customers receive product information that allows them to understand the product they are considering and how well it would meet their requirements. Two related recommendations in the Report followed from the review:

• Clear and accessible information: Consumers should be provided with clear information, including on insurer websites and in marketing materials, aided by glossaries, FAQs and references to policy clauses, etc.
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• Better guidance for intermediaries: The review found that there is a need for mechanisms and procedures to help intermediaries understand which of the documents and information provided to them should be passed on to customers.

These recommendations reflect the fundamental principle that a customer must be given the information required to make an informed decision prior to entering into an insurance contract.

Claims examination and settlement

The FTC Guidance states that claims should be "examined diligently and fairly settled" with a "simple and accessible" procedure. It emerged from the review process that the claims process was sometimes not explained clearly, leaving customers unaware of the full range of their options. The following recommendation was made:

• Clearer claims processes and documents: At all stages of the claims process, customers must be provided with complete, clear, accessible and understandable information.

The review noted deficiencies in denial letters issued by some insurers, particularly with regard to providing complete and understandable reasons for the denial and with regard to appeal or complaint processes.

Complaints examination and disputes settlement

The fair and diligent examination of consumer complaints is one of the key expectations set out in the FTC Guidance. The review found significant deficiencies in existing practices, leading to the following recommendations:

• ASMC-compliant reporting of complaints: The review found that many insurers are not reporting in accordance with the definitions in the CCIR Annual Statement on Market Conduct ("ASMC").
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• Improving the complaints process: While all insurers had complaints-handling policies and procedures, these were often difficult to follow, and it was therefore recommended that insurers work to ensure timely complaint resolution and clarity about complaints processes.

Information on expected turnaround times, the options for filing a complaint and "next steps" should also be communicated clearly.

Next Steps

The Report notes that the insurer is responsible for FTC throughout the life-cycle of the insurance product, as it is the insurer that is the ultimate risk carrier. However, the Report also notes that intermediaries also play a significant role in insurance distribution, and where more than one party is involved in the design, marketing, distribution, and policy servicing of insurance products, FTC in respect of the relevant services is a responsibility that is shared amongst involved insurers and intermediaries.

The cooperative review process will continue and CCIR expects that the results summarized in the Report will provide a tool for both P&C and L&H insurers to benchmark themselves against the reported recommendations, to the benefit of Canadian consumers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.