November 6, 2015
Life Insurance Agent on-site examinations are currently underway. The purpose of the examinations is to verify if agents are adhering to best practice recommendations from FSCO's product suitability review, and to assess the level of compliance by agents with their legal obligations under the Insurance Act.
As part of the examinations, FSCO's Senior Compliance Officers (SCOs) will verify whether agents maintain up-to-date errors & omissions (E&O) insurance, validate the completion of continuing education credits, and review a sample of files to assess compliance with disclosure requirements. In order for SCO's to fully assess whether agents are meeting their duties to their clients, SCO's will need to review client files, including files containing personal information. SCOs have the authority to obtain this information in connection with a compliance review, and agents are required to disclose it, under sections 443 and 444 of the Insurance Act. The information will not be collected, recorded or removed from the premises.
FSCO has conducted 70 life agent examinations since April 2015. FSCO appreciates the level of cooperation and preparation displayed by agents during the review process to date. Agents generally comply with licensing and continuing education requirements. However, FSCO has noted a need for continued improvement, particularly in the areas of documenting the needs assessment, providing statutory disclosures, and verifying the client's identity, as recommended in the product suitability review.
Insurance Act Amendments
The Ontario government has made amendments to provisions of the Insurance Act governing life insurance (Part V) and accident and sickness insurance (Part VII). The changes are aimed at modernizing key provisions dealing with policy issuance, disclosure and related matters; providing greater consumer flexibility and protection; and harmonizing the law with other jurisdictions. The changes include four new regulations, as follows:
- O. Regulation 278/15 Life Insurance - Application of Part V of the Act
- O. Regulation 279/15 Accident and Sickness Insurance – Application of Part VII of the Act
- O. Regulation 280/15 Life Insurance – General
- O. Regulation 281/15 Accident & Sickness Insurance – General
The changes will come into force July 1, 2016. FSCO will provide additional information in the coming weeks.
Licensing Link Enhancements
FSCO continues to work to improve Licensing Link, including adding a notation on the public registry if an agent's E&O policy information is out of date. FSCO will be adding new information to the licence application to collect information about an agent's insurer contracts. FSCO will also be moving away from paper renewal reminders and will provide these courtesy reminder notices by email starting later in 2016. FSCO will provide more information about this in the future.
Administrative Monetary Penalties (AMPs) for non-compliance with the Insurance Act
Since June 2015, FSCO has imposed 15 AMPs against life insurance agents, ranging from $500 to $1,500, for non-compliance with the Insurance Act. These violations of the law included failing to provide information to the Superintendent upon request about activities related to the business of insurance, and failing to maintain E&O coverage while licensed.
These AMPs were imposed as a result of non-compliance with the law as identified through on-site examinations and investigations initiated by complaints from the public.
It is essential that agents know the legal requirements and the importance of maintaining E&O coverage at all times while licensed. In a recent case before the Financial Services Tribunal (FST), an agent was assessed an AMP in the amount of $1,300 for failing to have E&O coverage for a four-month period. The agent argued in their defence that the licence was about to expire, that no business as an insurance agent was conducted during this period, and that the agent did not think it was necessary to maintain E&O. The FST noted:
"It is not open to the agent or any licensed insurance agent, to plead ignorance of the clear terms of the Insurance Act (Act) and the Regulations made pursuant to the Act. Not knowing the requirements of the governing legislation is simply no excuse."
Visit FSCO's enforcement actions web page for more information.
Promotion of Syndicated Mortgage Investments
FSCO has received reports of insurance agents receiving referral fees for referring their clients to mortgage agents or brokers about investing in syndicated mortgages.
As a reminder, you must be licensed as a mortgage agent or broker for a mortgage brokerage under the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) if you provide information about a mortgage investment or promote an investment in a mortgage. You do not need to be licensed under the MBLAA if you merely refer a client without providing any information about the investment. For more information, review the requirements for promoting syndicated mortgage investments bulletin FSCO recently issued.
If an insurance agent is also licensed as a mortgage agent or broker and as a mutual fund salesperson and is promoting and selling syndicated mortgage investments, the mutual fund dealer that the salesperson represents must be licensed under the MBLAA as a mortgage brokerage in order for the salesperson to conduct this business. The Mutual Fund Dealers Association and FSCO jointly issued a communication on this topic earlier this year.
Insurance agents are reminded that their clients should be aware that any investment in a syndicated or private mortgage investment is not insured by the Government of Ontario or any other investor protection fund.