To the attention of insurance agents and agencies licensed to transact insurance business in the Province of Ontario
This Bulletin addresses the following topics:
- New Ontario Regulation 347/04
- Enhancements to FSCO's Internet Application System (IAS)
- FSCO's Response to Incidents of Cheating on Provincial Exams
1. ONTARIO REGULATION 347/04 - Including new Conflict of Interest requirements for life agents.
The Government has made important changes in the law which add enhancements to insurance agent licensing requirements designed to:
- Provide an enhanced level of consumer protection.
- Eliminate unnecessary barriers to licensing.
- Update certain licensing requirements.
- Ontario Regulation 347/04 under the Insurance Act became effective on November 1, 2004.
- Regulation 347/04 replaces Regulation 663 which has been revoked.
1.1 Changes Affecting Life Insurance Agents - You now have new responsibilities related to Conflict of Interest
The insurance industry and FSCO have worked together to develop steadily improving standards governing agents’ qualifications. This regulation builds on existing standards by implementing a disclosure requirement for conflicts of interest and potential conflicts of interest that is consistent with the standards employed in other professions.
Conflict of Interest Disclosure Requirements - Section 16 of the Regulation
The regulation requires that you provide your clients with written disclosure of any conflict of interest or potential conflict associated with each transaction or recommendation. You must take this standard into account each time you deal with a client. Once you advise your client about the conflict, the client can decide whether or not to proceed with the transaction or your recommendation.
A conflict of interest in simple terms means that the agent has an incentive to act other than in the best interest of the client or prospective client.
FSCO does not propose to itemize all possible conflict situations, as each situation or transaction entails knowledge of the unique circumstances. As guidance, however, agents must handle all of their dealings with their clients with openness and transparency, and provide written disclosure if any doubt exists as to whether a particular situation will give rise to a conflict or potential conflict.
When dealing with your clients, you should ask yourself two questions to ensure you comply with the regulation:
- Would your advice or the product offered have been different if the situation or incentive giving rise to the potential conflict of interest did not exist?
- Would it appear to a reasonable, informed third party looking at all the facts that you acted in the best interest of your client?
FSCO recognizes that all agents establish their own networks in order to sell various products. A conflict of interest does not exist simply because one agent has easier access to a market than another agent. The regulation does not require disclosure of commissions as a routine matter, unless a difference in commissions would influence, or be perceived to influence, the recommendation or choice of insurance product.
You should ensure you retain copies of the written disclosure, or other records, to demonstrate compliance with the standard. You also need to understand how the concept of conflict of interest differs from coercion and undue influence. The fact that there is no conflict does not make the transaction acceptable if you used coercion or undue influence, including coercion through the influence of a professional or business relationship, in order to obtain the business.
Also, disclosure does not relieve you of your responsibility to act in the best interests of your client in accordance with the licensing qualification requirements such as suitability and carrying on business in good faith.
There is nothing in the regulation that precludes a company or agent from establishing standards that exceed the requirements in the regulation.
You do not require pre-approval or post-approval from FSCO, and therefore, FSCO will not be providing rulings on individual situations. If you are in doubt in a transaction - disclose.
Elimination of Unnecessary Barriers
Life insurance agents are no longer restricted to working in the financial services sector during their 2-year sponsored period.
Life agents can now obtain credit in calculating their sponsored period for the time they were licensed in another Canadian or U.S. jurisdiction if the Superintendent is satisfied that the category of the licence is equivalent to an Ontario life insurance licence.
Life Licence Qualification Program (LLQP) Recognized in the Regulation
There are no changes to current policies or procedures concerning the LLQP. However, agents are reminded that:
- A restricted licence will expire on the earlier of the 180th day after it is issued, or December 31, 2006 unless, by that time, the licensee is enrolled in the remainder (Part B) of the LLQP.
- Companies sponsoring agents who hold restricted licences are responsible for maintaining records documenting that the agents are complying with the requirements applicable to restricted licence holders.
- The transition period allowing restricted licences ends December 31, 2006. All restricted licences expire on December 31, 2006. All agents holding such licences must complete the LLQP prior to January 1, 2007.
- Current Level I agents are grandfathered but must pass the Level II exams or complete the LLQP within the earlier of 4 years from the date they obtained their Level I licence or December 31, 2006.
1.2 Changes Affecting All Agents
Elimination of Prohibition Against Other Occupations
The ability to hold concurrent employment that was available only to unsponsored (formerly known as Level II) life agents under previous regulation has been extended to all insurance agents. The lists of prohibited occupations that were deemed to place an agent in a position to use coercion or undue influence, have been eliminated.
These changes are being implemented to harmonize Ontario requirements with those of other Canadian jurisdictions and with other similar professionals.
The new regulation, however, requires that you not engage in any other business or occupation that would jeopardize your integrity, independence or competence.
Now, when applying for a new or renewal licence, you must declare any other business or occupation in which you are engaged. You may also be asked for this information during an audit. The Superintendent must be satisfied, based on the information provided, that the other business or occupation will not have a negative impact on your integrity, independence or competence. This consideration becomes a part of the test of suitability.
As you can imagine, there are many different occupations and combinations of occupations. Therefore, each case depends on its own facts.
As an aid to compliance, ask yourself the following three questions:
- Does this other occupation affect my integrity as an agent?
- Does this other occupation restrict the independence of the advice I am providing to my clients?
- Does this other occupation prevent me from maintaining or increasing my competence as an agent because I will not be receiving adequate experience or training?
As with conflict of interest, the general rule applies - if in doubt, don't engage in the other occupation.
New Requirement for Ontario Address For Service of Legal Documents
In addition to your home address, the new regulation requires that agents and agencies licenced in Ontario now provide the Superintendent with an address in Ontario that is not a post office box, that is suitable for service of documents by registered mail. This change is being introduced to enable FSCO to initiate any necessary enforcement action and to facilitate service of legal documents such as those related to lawsuits brought against agents.
Agents who reside in Ontario may use their home address as their address for legal service if it meets the criteria set out above.
Agents residing outside Ontario must arrange for an address for legal service in Ontario and advise FSCO of the address.
The Insurance Act permits the Superintendent to send mail to the last known address of an agent on record at FSCO and you are deemed to have received the mail sent to that address. Therefore, it is in your interest to ensure that FSCO has current, accurate, information at all times.
Failing to provide and update this information in a timely manner places you in violation of the regulation and could result in your being unaware of important licensing or enforcement matters or proceedings against you.
Regular Correspondence with Agents
FSCO recognizes that it is important that all agents receive regular correspondence on a timely basis, as it impacts your licence and livelihood. Therefore, FSCO will now send all regular correspondence to your home address in order to ensure that it is received promptly. FSCO has found that business address information often becomes obsolete and is not a reliable way of getting mail to agents.
1.3 Changes Affecting General and Accident & Sickness Agents
General and accident and sickness agents are no longer required to work full-time or solely as an insurance agent.
1.4 Changes Affecting Agencies
The majority shareholder of a corporate agency no longer has to be a licensed agent. However, anyone who solicits from the public must still be licensed.
Insurance agencies with a foreign head office are now permitted.
The regulation no longer requires that the incorporating documents expressly state that the agency was incorporated for the purpose of acting as an agent.
For further information on these changes please refer to the attached Frequently Asked Questions.
2. ENHANCEMENTS TO FSCO’S INTERNET APPLICATION SYSTEM (IAS)
General and accident and sickness agents can now join life agents in using FSCO’s Internet Application System (IAS) for most licensing activity.
IAS is fast, secure and convenient. Paper-based applications are costly and time-consuming.
Since IAS was introduced, 21,572 applications have been submitted via the Internet and, today, over half of all life agent renewals are done via IAS.
Agents benefit by instantaneous renewals and by helping FSCO to control costs and fees. As you know, the existing licensing fees have not been increased for over a decade because of steps taken by FSCO to control costs.
Why Should You Use the IAS?
- If you're renewing a licence, your application can be completed in 15 minutes and approved immediately.
- LAS is available to you 24 hours a day, seven days a week, and is fast, secure and convenient.
- You can complete an application from home, office or any location.
- No matter when you complete a licence application, your licensing information at FSCO and on FSCO’s website is updated immediately, as soon as you complete the application process. As a result, the agent listing information on our website always contains the most accurate and timely information.
What Do You Need to Do?
- Go to the licensing section of FSCO's website at: www.fsco.gov.on.ca where you can access the IAS, see a demonstration of the easy-to-use system, review an IAS brochure and browse IAS Frequently Asked Questions.
- Complete an electronic application.
3. FSCO'S RESPONSE TO INCIDENTS OF CHEATING ON PROVINCIAL EXAMS
Cheating on examinations is not new, but as a result of inappropriate incidents involving some candidates who were taking the LLQP examination, FSCO has asked Durham College to implement additional security measures. These security measures have resulted in an additional cost to the insurance industry.
In addition, this cheating affects the hard-earned reputation of all insurance agents.
The exam questions are the property of the regulators and are not made available to anyone else, for any purpose. To help protect the hard-earned reputation enjoyed by the majority of agents, anyone who is offered questions which are purported to be from any provincial licensing exam should contact his/her sponsor, his/her manager and the Senior Manager, Licensing and Registration at FSCO, immediately.
FSCO intends to continue to take enforcement action against agents and companies found to have participated in cheating. Any agent who is found to have obtained questions which are, or are purported to be, LLQP exam questions may be subject to enforcement action which could include licence conditions, prosecutions, or civil actions to recover costs.
Effective November 1, 2004, the examination fees in Ontario for both the paper and electronic versions of the LLQP examination have changed. The new prices are available on the Durham College website at: www.durhamcollege.ca/llqp/
For Further Information on These Changes
- Refer to the attached Frequently Asked Questions.
- Visit the Licensing section of FSCO’s website at: www.fsco.gov.on.ca , "What's New", "New Regulation Governing Insurance Agents (Nov. 1, 2004)" where you can download a copy of Regulation 347/04. FSCO's website is continually updated with new information that is important to you.
- Contact FSCO's licensing hot line at: (416) 250-9209, toll-free: 1-800-263-0541.
Bryan P. Davies
Executive Officer and
Superintendent of Financial Services
December 17, 2004