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CLHIA's Proposal on Keeping Regulators Informed


Release Date: 03/04/2014
Staff Reference: Leslie Byrnes

March 4, 2014

Ms. Carolyn Rogers
Chair, Canadian Council of Insurance Regulators
5160 Yonge Street
Box 85, 17th floor
Toronto, ON M2N 6L9

Dear Ms. Rogers:
I am writing to provide the CLHIA's input on the request you made to industry members for suggestions on determining when developments in the insurance market are of such significance that they should be communicated to regulators and the best ways to make such communication as easy as possible.

Our attached Proposal on Keeping Regulators Informed suggests a two-pronged approach. First, it suggests that ongoing market intelligence gathering be strengthened in order to create a stronger baseline of information for regulators. And then, it outlines an approach for identifying significant developments and notifying the regulators about them. As stated in the Proposal, the industry anticipates that there would be at most a handful of such significant developments from across the country in any given year.

We wanted to also reinforce, as you did in your letter, that notification of significant developments is not, nor is it intended to become, a pre-approval process. As well, in the context of discussing situations when companies provide regulators with sensitive information or information that may have competitive implications, the importance of having a self-evaluative privilege in place is highlighted. Thus, we have recommended that companies report to their home regulator, where such protection is more likely to exist, rather than to a CCIR committee. Further, we urge CCIR to encourage those jurisdictions that have not yet adopted a self-evaluative privilege to move on this front as soon as possible.

We look forward to discussing our Proposal or to answer any questions you may have, at your convenience.

Yours sincerely,

Original signed by

Frank Swedlove


PROPOSAL ON KEEPING REGULATORS INFORMED

The life and health insurance industry appreciates the opportunity to provide input to the Canadian Council of Insurance Regulators (CCIR) in response to its letter of July 24, 2013 about "methods for pro-active market intelligence gathering" and seeking "suggestions on determining when changes are significant and need to be communicated to regulators and the best way to make such communication as easy as possible".
The industry recognizes the need for regulators to be aware and informed of significant developments in the insurance market. Indeed, such expectations are reinforced through the IAIS Insurance Core Principles. To achieve this goal, we set out a two-pronged approach: the first deals with mechanisms for ongoing market intelligence gathering, and the second with timely notification to regulators about impending significant developments. In the case of the latter, we suggest a variety of factors that can be used to identify significant developments.

1. ONGOING MARKET INTELLIGENCE GATHERING

Structured interactions between the regulators and the industry now take place on a regular ongoing basis, be it with specific insurers or with the CLHIA. This is an important existing tool that, we suggest, could be used to promote more dialogue by, for instance, including an agenda item that focuses on industry trends and developments or increasing the incidence of CCIR-CLHIA meetings. Commitment on the part of both regulators and the industry is important in making these interactions as effective as possible.

CLHIA currently meets with CCIR on an annual basis, at the invitation of CCIR, and provides an overview of industry developments with particular attention to the impact of policy/regulatory initiatives and international regulatory developments. In addition, CLHIA is always available to CCIR to provide input on issues of interest (e.g., providing insurer expertise for a CCIR/CAPSA session on longevity risk in fall 2013). We see an augmented role going forward in providing information to CCIR about any new development that has an industry-wide impact and is likely to result in prominent media coverage of the industry, including trade media. For example,

      a. government budget announces tax exempt changes
      b. pressures on governments to restrict insurers' ability to underwrite -- e.g., to not use information from genetic tests
      c. changes in capital requirements have prudential impact on insurers
      d. the industry's response to major disasters (e.g., 9/11).
In the case of a new development that has an industry-wide impact, CLHIA would likely need to consult its members to have a fuller understanding of the impact, before bringing it to the attention of CCIR. If the information is not time critical, CLHIA would give notification at the next regularly scheduled meeting with CCIR. Otherwise, CLHIA would contact CCIR on a priority basis.

To further supplement the regulators' goal of staying informed, CCIR may wish to consider putting into place some additional tools that might be helpful. For example:

i. Obtaining insurers' news releases. This would give regulators a reliable and comprehensive flow of information and could be achieved by establishing feeds from the news wire services to get copies of all news releases issued by individual insurers. The CLHIA could work with the CCIR to ensure that an effective system is put in place.
ii. The industry could provide CCIR members with a list of primary contacts at each insurer (e.g., government relations officers) from whom to obtain information on developments in the industry / obtain information on new significant developments. The industry would undertake to refresh the list regularly to ensure that it stays up to date.

The suggestions above (i.e., increased meetings and new tools) are intended to increase the level of regular industry-regulator interaction to provide a stronger baseline of information about day-to-day industry activities and developments and to provide for more opportunity to discuss emerging trends.

2. NOTIFICATION ABOUT SIGNIFICANT DEVELOPMENTS

In addition, there would be instances of significant developments in the insurance market where special notification to regulators could be provided by insurers. We set out a process for identifying and giving notification of such significant developments, below. The industry anticipates that there would be at most a handful of new developments from across the industry in any given year. In such cases, a short summary of the development would be provided to the appropriate regulator so that they are aware of and informed about the upcoming developments.

As new developments are assessed, a variety of factors can be applied to determine whether such new developments are 'significant' and should therefore be brought to the attention of the relevant regulator(s). The particular factors that we suggest are described in items A, B, and C, immediately below, along with examples from past initiatives (in some instances) to illustrate what types of situations are meant to be covered.

    A. Is It A Development For Which Notice Should Be Provided?
The following indicia could be provided to assist insurers in helping to determine whether to bring a particular significant new development (e.g., new products, new underwriting or new claims adjudication processes, new forms of distribution) to the attention of regulators:

i. An insurer is introducing a product line that is new to the Canadian industry or provides insurance coverage for a type of risk not previously covered:
        a. e.g., when critical illness or long term care insurance or longevity insurance were first introduced in the Canadian market
ii. An insurer is making changes to introduce novel or exceptional elements for the first time in the Canadian market:
        a. i.e., significant changes to an existing product e.g., the introduction of level cost of insurance in universal life insurance; the introduction of guaranteed minimum withdrawal benefits
        b. i.e., significant changes to claims or underwriting practices
        c. i.e., the introduction of an entirely new distribution model, never used in the industry before
iii. An insurer anticipates that a new development (e.g., a significant business change) is likely to have a significant impact on policyholders as a whole and to result in prominent media coverage of the industry, including trade media:
        a. e.g., if an insurer has marketed similar products or made changes to operating methods internationally, and those initiatives garnered media attention abroad, and the insurer anticipates that similar attention would result when the product is first introduced in Canada.
The existence of any of these indicia does not necessarily mean that a notification to the regulators is warranted. For example, a new product that is being introduced at present is PRPPs. Applying strictly the process described immediately above, this would likely fall under A(i) and the first insurer to market should therefore notify the regulators. However, given extensive industry discussions with regulators during the policy development phase, it may be that additional insurer notification of regulators would be redundant.

    B. Provision Of Notification
Where an insurer determines that notice is warranted, it is proposed that the notification be sent to the insurer's 'home' regulator "Home regulator" is the provincial jurisdiction where the insurer has its head office or, in the case of a foreign insurer operating as a branch in Canada, the provincial jurisdiction in which it has its principal office. , which in turn would assess if the development might be of interest to the other regulators and may then distribute the information to other insurance regulators, as may be appropriate. This is most workable from an administrative perspective. It would also optimize any privilege/confidentiality protection afforded to communications between an insurer and its regulators.
If the new development is relevant only to a province that is not the 'home' regulator, then that particular province could also be notified directly.
Any disclosure would need to be made in compliance with financial disclosure requirements of securities laws.

    C. Reasonable Time For Notification
The lead time for informing regulators will vary depending on the nature of the significant development, its sensitivity, complexity, and the time that would be needed for the regulator to become informed. Judgment will need to be applied in each case. However, as a general objective, in the case of an insurer initiative, a reasonable lead time for informing regulators could be about two weeks from when the development is to become public. While this should be sufficient in most instances, in some cases a longer time period may be appropriate. In other instances, circumstances may dictate a shorter period.

In all situations, the goal is for the time period to be workable and reasonable for both the regulators and the particular insurer, as the case may be.