CLHIA Comments on Insurance Council of British Columbia's proposed Conflict of Interest GuidelinesRelease Date: 02/24/2014 Staff Reference: Peter Goldthorpe
February 24, 2014
Insurance Council of British Columbia
Suite 300, 1040 West Georgia Street
P.O. Box 7
Vancouver, BC V6E 4H1
Dear Mr. Matier:
The Canadian Life and Health Insurance Association (CLHIA) is pleased to provide comments on the Insurance Council of British Columbia's (Council) proposed Conflict of Interest Guidelines (Guidelines).
Established in 1894, CLHIA is a voluntary trade association that represents the collective interests of its member life and health insurers which, together, account for 99% of the life and health insurance in force in Canada. Our members contribute to the financial well-being of millions of Canadians by providing a wide range of financial security products, including over $3.9 trillion of life insurance coverage. During 2012 in British Columbia, life and health insurers made benefit payments of $7.3 billion, or roughly $140 million a week, to policyholders and beneficiaries.
While the concept of conflict of interest is relatively straightforward, actual conflicts are often difficult to identify and assess in practice. The Council's efforts to clarify this issue are, therefore, welcome. On specific points, however, the guidance seems to create onerous and unnecessary restrictions on life agents.
In 2006 the Canadian Council of Insurance Regulators (CCIR) established three principles for managing conflicts of interest. These can be summarized as: putting the client's interests first; disclosing conflicts; and making suitable recommendations. Implicit in these three principles is the notion that an advisor who provides his or her customer with sound advice has effectively managed whatever conflict of interest may exist.
In Section 3 of the Guidelines, the Council advises that "where there is an irreconcilable conflict … the Licensee should decline to act on behalf of that client, regardless of whether the client consents to the conflict of interest." The Guideline does not include a definition of irreconcilable conflict. But using the CCIR principles as a guide, it seems likely that an irreconcilable conflict is one where an advisor is unable or unwilling to make a suitable recommendation. Accordingly, it may be clearer and more effective to dispense with the concept of irreconcilable conflict and focus, instead, on the advisor's ability or inability to manage the conflict.
Similarly, Section 5 requires that, where there is a conflict, the advisor must obtain express, written consent. CLHIA agrees that it is a prudent business practice for advisors to document all material aspects of a transaction. Having said that, it is not clear how the client benefits by providing consent, express or implied, when a conflict is identified. The advisor must still assess the client's needs and make recommendations based on those needs. The fact that the client has consented to a conflict does not change the advisor's responsibilities.
Finally, in the examples of conflicts described in Section 6, the discussion of other employment seems to be singled out with uniquely prescriptive advice. It is reasonable to cite examples of occupations that increase the risk that a conflict of interest may arise. And the specific questions help illustrate legitimate concerns in this area. But it is not clear that it is necessary for the Council to intervene so actively in situations where an agent is engaged in one of these occupations. Proactive interventions of the type described in this Guideline should be reserved for situations in which there is clear evidence of potential harm for consumers.
In addition to these general comments, CLHIA recommends a couple of specific drafting changes to the clauses in Section 4. In (d), the phrase "other than standard commissions or fees for a service" should be deleted as it seems to equate compensation with other forms of consideration that may create conflicts of interest. In (e), it may be clearer to simply say "give or receive an inducement to or from a party not directly involved in the transaction" and rely on the expanded discussion in Section 6 (iii) to clarify the intent. As drafted, it could be read as applying to distributors such as dealers and MGAs that provide back office services to the advisor.
Since 2005, CLHIA has published guidance on disclosure and needs-based sales practices intended to help advisors effectively manage conflicts of interest. These documents are based on discussions with regulators and were developed in cooperation with advisor groups. If the Council agrees that the overall objective should be to manage conflicts so that the customer is provided with advice that is appropriate to his or her needs, CLHIA would be pleased to expand on these industry initiatives as an alternative to the Council's Guidelines.
If it is helpful, I would be happy to expand on any of these comments or the suggestion about an alternate industry initiative.
Original signed by
Peter B. Goldthorpe
Director, Marketplace Regulation Issues