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CLHIA Comments on FSCO's draft 2017 Statement of Priorities

Release Date: 05/23/2017
Staff Reference: Erica M Hiemstra

May 23, 2017

Mr. Brian Mills
Chief Executive Officer and Superintendent of Financial Services
Financial Services Commission of Ontario
5160 Young Street, Box 85
Toronto, ON M2N 6L9

Dear Mr. Mills,

The Canadian Life and Health Insurance Association is pleased to respond to your request for comments on FSCO's draft 2017 Statement of Priorities.

With the work now underway to implement the Financial Services Regulatory Authority in Ontario, marketplace and technology innovation and insurance regulatory harmonization initiatives both domestically and abroad, we appreciate that this is a time of change for FSCO. We commend FSCO’s commitment and drive to continue to be an effective regulator throughout all of these changes and fully support FSCO’s seven priority areas, which are to:

    1. Ensure financial services industry compliance with laws and regulations.
    2. Provide adequate disclosure of information to enable informed decisions by consumers and pension plan members.
    3. Raise awareness of FSCO's actions in the financial services marketplace.
    4. Create common and integrated processes enabled by integrated technology solutions.
    5. Enhance the collection, use and sharing of market intelligence.
    6. Be an agile and adaptable organization.
    7. Influence the development of provincial, national and international regulatory policy.
Our comments below are organized according to the two themes set out in the draft Statement of Priorities.

Treating Consumers Fairly

The IAIS Insurance Core Principles (ICP) 18 and 19 set out supervisory standards for intermediaries and conduct of business, respectively, including the fair treatment of customers. We believe that real opportunities exist to build on these market conduct ICPs and to standardize good practices that serve consumers well.

In insurance distribution, the life and health insurance industry has spent considerable time examining how different distribution structures can better serve the needs of customers and meet insurers’ compliance obligations. After careful consideration of the options, we believe that a regulatory licensing and oversight regime is required to establish distribution firms (MGAs, national accounts, captive sales forces) as distinct, licensable entities with certain oversight responsibilities in order to provide consolidated oversight of agents. We understand that the CCIR has established a working group to consider this industry recommendation and would encourage FSCO to take a leadership role in that group.

In addition, requiring a needs analysis before an advisor recommends a product and documenting how a policy is suitable to the consumer by providing a brief 'reason-why' letter after the sale are key examples of practices that support treating consumers fairly. Currently, only Quebec requires a needs analysis and no province requires a "reason-why" letter. CCIR action to set out specific regulatory expectations in these areas would support the industry’s effort to establish these best practices and FSCO’s view that treating consumers fairly “means taking the time to understand their needs and putting in the extra effort to make sure they understand the risks and their responsibilities.” As we did last year, we once again urge FSCO to lead such a project within CCIR.

On segregated funds, we commend the leadership role that FSCO continues to play in CCIR’s Segregated Funds Working Group and its ongoing consultations with the industry. On disclosure documents in particular, we would encourage FSCO to work through CCIR to engage securities regulators to work collaboratively with insurance regulators in order to implement more detailed cost disclosure (MER and any additional costs and fees) in the annual statements provided to IVIC policyholders and mutual fund customers. To that end, we would note that the mutual fund industry has signaled an interest in moving to full cost disclosure and in aligning approaches with the insurance industry to the benefit of consumers.

The draft Statement of Priorities mentions a number of other “treating customers fairly” initiatives. We are pleased to provide a brief comment on each below.

    • Placing an emphasis on industry compliance with laws and regulations, specifically relating to disclosure of risks and responsibility for consumers. We fully support FSCOs compliance efforts, but would appreciate clarification on what FSCO means by disclosure of risks in the context of life and health insurance.
    • Increasing Ontarians’ financial literacy and educating consumers to protect themselves from fraud. Again, we support both of these areas and would encourage FSCO to coordinate its efforts with the Financial Consumer Agency of Canada, which is leading the work to implement Canada’s national financial literacy strategy and has also developed a number of anti-fraud resources for consumers.
    • Awareness raising and stakeholder engagement. We commend the proactive approach that FSCO has taken in establishing the Life Insurance Industry Working Group and look forward contributing to FSCO’s consumer protection mandate through that group.
    • Supporting national regulatory organizations and initiatives. We encourage FSCO to continue to take a leadership role in the CCIR and the risk-based regulation initiatives being undertaken through CCIR’s Framework for Cooperative Market Conduct Supervision in Canada. Similarly, we encourage FSCO’s ongoing participations in other national regulatory organizations, like CISRO.
We believe that by engaging in the broad range of issues noted above, FSCO will continue to support the fundamental principle of treating customers fairly.

Enabling Innovation

The life and health insurance industry is pleased to see FSCO acknowledge the importance on fintech by making it a key part of its Statement of Priorities. We believe FSCO’s risk-based approach to regulation combined with its commitment to stakeholder engagement will set the ground work for an effective approach to enabling innovation in Ontario’s financial services sector while finding the appropriate balance for consumer protection.

We agree that collaboration and information sharing among stakeholders and regulators in this area is of fundamental importance. We encourage FSCO to work on innovation issues through the CCIR and note that there may also be opportunities to partner with other regulatory authorities, like the AMF, that already have fintech initiatives underway.

We also support and encourage the modernization of FSCO’s operations through technology. In terms of compliance, we commend the recent updates to FSCO’s Licensing Link system. The industry supports further efforts in this regard.

Thank you for the opportunity to comment. We look forward to working constructively with FSCO over the coming year.


Original signed by

Frank Swedlove