Life Insurance Agents Compliance Report: 2016/17 Examination Results

​​​​Contents

 

Executive summary

Introduction

Summary of findings

Methodology

Detailed findings

Industry best practice findings

Compliance with PIPEDA and FINTRAC

Enforcement

FSCO's commitment to fair treatment of consumers

 

Executive summary

Introduction

The Financial Services Commission of Ontario (FSCO) is a regulatory agency established by the Financial Services Commission of Ontario Act, 1997 and is accountable to the Minister of Finance. FSCO's legislative mandate is to provide regulatory services that protect the public interest and enhance public confidence in the sectors it regulates. FSCO oversees insurance, pension plans, mortgage brokering, credit unions and caisses populaires, co-operative corporations, loan and trust companies in Ontario, and service providers.

 

Life insurance agents are intermediaries who sell life and health insurance products and services on behalf of insurance companies. FSCO is responsible for the monitoring and oversight of the approximately 45,000 life insurance agents who are licensed in Ontario.

 

This report summarizes FSCO’s review findings and resulting enforcement actions from the 200 on-site examinations and 22 follow-up desk reviews conducted during the fiscal year, April 1, 2016 – March 31, 2017. It also sets out FSCO’s expectations for life insurance agents as the sector evolves, in terms of becoming more accountable and compliant with the legislation and regulations designed to protect consumers.

Summary of findings

FSCO found a moderate level of compliance of 70 per cent overall, which is down from 98 per cent in the previous year. This decrease was primarily due to new risk selection factors used to identify and examine those agents at higher risk of non-compliance. These factors are discussed in further detail below in the Methodology section of this report.

 

There was also a decline in compliance with Canadian Life and Health Insurance Association (CLHIA) best practices, but an increase in compliance with the Personal Information Protection and Electronic Documents Act (PIPEDA) and Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

 

Methodology

 

FSCO takes a risk-based approach in selecting which agents to examine each year. In 2016/17, the selection process for life agents was modified by applying new specific risk criteria and factors that included:

 

  • licensing observations;
  • complaints from consumers about agent conduct;
  • life agents who had been sanctioned by another regulator;
  • dually licensed agents (i.e., agents holding both a life and mortgage agent/broker licence); and
  • history of previous compliance issues.

Life agents were rated as being at low, medium or higher risk of non-compliance. FSCO selected high- and medium-risk agents for an on-site examination.

 

Specifically, the examinations were conducted to evaluate and verify whether:

 

  • the life agent’s business, selling practices and procedures comply with the law;
  • licensing requirements, including the completion of continuing education credits and valid errors and omissions insurance were met;
  • appropriate point-of-sale statutory disclosure requirements were being met;
  • industry best practices were being followed; and
  • legislative requirements met when undertaking life insurance replacement.

A review of the life insurance agent’s policies and procedures was added to ensure compliance with FINTRAC and PIPEDA.

 

Detaile​d findings

 

Of the 200 life agent examinations and 22 follow-up reviews, a total of 66 agents, or 30 per cent, were found to be non-compliant with one or more legislative and/or regulatory requirements.

 

These findings were consistent with the previous year’s findings for most written disclosure requirements and the requirement to have active E&O insurance. However, 2016/17 showed a marked decline in agents completing the necessary education credits and in disclosing the names of all providers of financial products or services that the agent represents to purchasers of non-insurance financial products or services.

 

The following chart compares the 2016/17 findings with 2015/16 findings.

 

Key legislative requirements: Two-year comparison

 

Key legislative requirements: Two-year comparison 

 Key areas of compliance with the Insurance Act and regulations year-over-year comparison
(as a percentage of total agents examined).

 

Description of ​key legislative requirements: Two-year Comparison image [New Window]

 

Industry best practice findings

FSCO expects life agents to follow CLHIA best practices.

 

In general, FSCO found the implementation of the CLHIA best practices across the life agents examined to either be the same from year-over-year, or to have declined with respect to key items examined. Specifically, agents lacked documentation within their client files regarding recommendations made to the client. Documentation is an important part of compliance with best practices as it demonstrates the due diligence and product suitability assessment undertaken during the selling process.

Compliance with PIPEDA and FINTRAC

FSCO expects that life insurance agents are aware of their legal obligations regarding PIPEDA and FINTRAC.

 

PIPEDA sets rules for how private-sector organizations may collect, use or disclose personal information in the course of commercial activities.

 

FINTRAC is the agency responsible for the collection, analysis and disclosure of information to assist in the detection, prevention and deterrence of money laundering and terrorist financing in Canada and abroad.

 

A review was performed to assess whether life insurance agents have established policies and procedures to comply with their PIPEDA and FINTRAC obligations. FSCO found a year-over-year improvement in agents meeting both FINTRAC and PIPEDA requirements in their policies and procedures – compliance was 86 per cent, up from 80 per cent the previous year, and 96 per cent versus 83 per cent the previous year, respectively.


Enforcement


FSCO made 61 referrals to Regulatory Discipline Officers or program managers, for potential enforcement actions, as a result of the 200 on-site examinations. FSCO also conducted 22 follow-up reviews to assess whether non-compliant agents identified in the previous year had fixed the issues in their practices and disclosures. Five of those follow-up reviews resulted in referrals for possible enforcement action.

 

The following chart shows the non-compliant findings by percentage that led to the 66 total escalations.

 

Life agent escalations: Non-compliance items identified

 

Life agent escalations: Non-compliance items identified 

Description of l​ife agent escalations: non-compliance items identified image [New Window]


 

FSCO’s commitment to fair treatment of consumers


In the year ahead, the fair treatment of consumers by life insurance agents will be one of the main areas of focus for compliance examinations by FSCO – particularly with regards to product suitability and disclosure.

 

FSCO is committed to consumer protection and will pursue regulatory action where there is evidence of non-compliance by an agent. Regulatory action can range from a letter of caution, to an administrative monetary penalty, up to licence revocation or prosecution. FSCO’s regulatory decisions are based on the specific facts and circumstances of each case.

 

All licensed life insurance agents must meet their legal requirements under the Insurance Act, as well as the regulations and obligations under FINTRAC and PIPEDA. FSCO encourages licensed life agents to visit the Insurance pages on FSCO’s website in order to learn more about their legal obligations. 

 

In addition, adherence to industry best practices is also critical to ensuring consumer protection. Life agents are expected to be familiar with CLHIA best practices, and apply them to their day-to-day operations. If FSCO observes a general failure to follow industry best practices, FSCO’s Superintendent may consider it appropriate to make recommendations to the government to incorporate them into regulations.

 

FSCO will continue to conduct on-site examinations and follow-up desk reviews to verify compliance with the law and industry best practices.


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