IBAO Submission to the FSCO/DICO/FST Mandate Review Panel June 5, 2015

Transcription

1 IBAO IBAO Submission to the FSCO/DICO/FST Mandate Review Panel June 5, 2015 WHO WE ARE The Insurance Brokers Association of Ontario (IBAO) represents over 12,000 insurance brokers who service six million policyholders in the Province of Ontario. Insurance brokers are highlytrained professionals with very strong community ties. Their priority is to serve the best interest of the consumer, from the initial product selection through client advocacy with insurers in the event a claim is made. Insurance brokers are also business people, mainly small and medium sized businesses. Headquartered in Toronto, IBAO Staff oversees the development and implementation of education, policy and administrative matters as directed by the IBAO Board of Directors. The IBAO Board is comprised of 13 elected Directors and 5 elected Executive members from cities and towns throughout the Province of Ontario. Over the years, IBAO has been an important voice within the insurance industry and to government regarding a number of policy-related issues that affect consumers and brokers, whose interests are intertwined: both require a transparent market in order to function optimally; one that is accessible, accountable, efficient, and fair. FSCO Mandate Review For the purposes of this submission, IBAO will limit its comments to the Financial Services Commission of Ontario (FSCO). IBAO will also generally confine its comments to the mandate of FSCO with respect to property and casualty (P&C) with a strong emphasis on auto insurance. These are the areas with which IBAO, through its ongoing experience in the P&C sector and interactions with the regulator, can provide suggestions to the panel to help FSCO better fulfill its mandate. The following questions have been posed in the April 21 st, 2015 Consultation Paper entitled, Review of the Mandates of the Financial Services Commission of Ontario, Financial Services Tribunal and the Deposit Insurance Corporation of Ontario (the paper): 1. Whether, and to what extent, each agency s mandate continues to be relevant to Ontario s goals and priorities? 2. Whether the agency is carrying out the activities and operations as required in its mandate? 3. Whether all or part of the functions of the agency are best performed by the agency, or whether they might be better performed by a ministry, another agency or entity? 4. Whether changes to the current governance structure and associated accountability mechanisms are necessary to improve mandate alignment and/or accountability? 1

2 1. Whether, and to what extent, each agency s mandate continues to be relevant to Ontario s goals and priorities? With respect to property and casualty insurance, IBAO believes that the mandate of FSCO to regulate consumer protection and the market conduct of the various participants including insurers, health providers, and intermediaries to not only be relevant but, indeed, vital to the proper functioning of the P & C insurance marketplace. It is important to point out that the majority of the regulatory activity with respect to the P & C sector is with auto insurance. This is a result of political and policy decisions over many years in Ontario. Regulatory oversight by FSCO of auto insurance is heavy and extends into price regulation, also known as file and approve, where insurers must file rates and rating profiles. FSCO must approve those rates and ensure that those approved rates adhere to the various rules and regulations that protect consumers from discriminatory tactics and other unfair and deceptive acts and practices (UDAPs). These rate filings are extremely complex. FSCO must also ensure that the rates being charged are fair and reasonable and do not impair the sustainability of the insurer, i.e. rates are too low, or that are not above the regulated rate of return, i.e. rates are too high. Property and Casualty Insurance Agents The Insurance Act defines an agent who is a person, for compensation, commission or any other thing of value, (a) solicits insurance on behalf of an insurer that has appointed the person to act as the agent of such insurer or on behalf of the Facility Association under the Compulsory Automobile Insurance Act, or (b) solicits insurance on behalf of an insurer or transmits, for a person other than himself, herself or itself, an application for, or a policy of insurance to or from such insurer, or offers or assumes to act in the negotiation of such insurance or in negotiating its continuance or renewal with such insurer, and who is not a member of the Registered Insurance Brokers of Ontario (RIBO); (emphasis added). In other words, agents generally do the same things as brokers except that they represent just one company either as a direct employee or as commissioned agent. Brokers who shop around on behalf of a customer and deal with more than one insurer are independent brokers. Independent brokers conduct is governed by the Registered Insurance Brokers of Ontario Act that established the self-regulatory authority known as the Registered Insurance Brokers of Ontario (RIBO). Established in October 1981, RIBO regulates the licensing, professional competence, ethical conduct, and insurance-related financial obligations of all independent general insurance brokers in the province. 1 If the overall mandate of FSCO is to regulate and protect consumers, IBAO considers this bifurcated approach to be a gap that permits a two tier type of regulatory regime governing the selling of identical insurance products depending whether they are independent or not problematic. IBAO would like to see employees who sell insurance be subject to the same minimum standards that apply to independent registered brokers or agents. In particular, education requirements and be subject to the more robust enforcement/disciplinary function that RIBO provides. It is unclear how FSCO monitors or enforces dedicated agents under its jurisdiction or if it enforces at all. However, RIBO, while not perfect, has a fairly transparent process that includes random spot checks. They also handle complaints in a timely manner. Please see Appendix 1 for a more detailed explanation of how RIBO enforces its mandate

3 2. Whether the agency is carrying out the activities and operations as required in its mandate? The short answer is: not very well. IBAO believes that FSCO is not adequately enforcing its current regulatory mandate because it does not have the ability to deploy resources effectively. Adequate policies, rules and regulations to protect consumers and regulate market conduct are on the books. Indeed, they have been beefed up recently - e.g. SABS health providers. However, enforcement is weak and resources inadequate to deal with the number of participants in the system. IBAO believes there are a number of reasons why FSCO cannot or will not enforce its mandate, and we have suggestions that will be discussed later in this submission. IBAO believes the inability to fulfill its existing mandate is the result of: a) Inadequate resources; b) Inadequate tools, partly as a commitment to principles based environment that relies on self-reporting and complaints; c) An inability to deploy resources effectively because of broader government constraints; d) A culture that is averse to controversy. IBAO has been frustrated by the response of FSCO to complaints. In the past, IBAO has made complaints regarding the marketing of unauthorized insurance products in credit union branches, a practice which is explicitly prohibited. It is unclear how FSCO investigates such a complaint. After a period of time, the message back is that FSCO investigators have spoken to the alleged violator, and they have assured FSCO that they will not do this anymore. Similarly, IBAO has complained about insurers that compel brokers to violate consumer protection rules including the take-all-comers rule particularly in hard markets. Brokers are unable to complain lest their book of business be cut off. They also believe that FSCO does not enforce the law. IBAO believes this is wholly inadequate. Violators of any part of the Insurance Act need to be charged and adjudicated, and if found guilty, fined or whatever else the Act provides as penalties. Violators need to be publicized. These are basic principles of the rule of law and justice. 3. Whether all or part of the functions of the agency are best performed by the agency, or whether they might be better performed by a ministry, another agency or entity? IBAO believes the issue with respect to auto insurance is not a function of where it resides, but whether it has the tools and the will to vigorously enforce its mandate. IBAO believes that the Credit Union sector should stay under the FSCO umbrella as it currently pertains to market conduct. The Credit Union Act intersects with insurance with respect to the selling and marketing of unauthorized insurance products in-branch and soon online. IBAO believes it continues to makes sense for this regulated activity to reside at FSCO. The issue is one of enforcement and proper monitoring of market activity and would benefit from reforms discussed in this submission. 3

4 4. Whether changes to the current governance structure and associated accountability mechanisms are necessary to improve mandate alignment and/or accountability? FSCO must be completely transformed with respect to enforcement. FSCO should adopt a proactive, investigative model for market conduct/enforcement as opposed to a passive complaint-driven model monitoring market conduct activity. Every complaint needs to be investigated properly and transparently. Random spot checks of the various players in auto insurance under FSCO s jurisdiction need to be conducted. It is our view that if FSCO was respected and feared by the criminals and abusers of the auto insurance system, a significant part of the fraud and abuse plaguing Ontario s auto insurance system could be removed from the system. Premiums could then be lowered for consumers. FSCO is constrained by Ontario government rules on hiring decisions and use of own source revenues. IBAO believes FSCO must be decoupled from government rules and guidelines regarding hiring and revenues in order to properly fulfill its market conduct mandate and adopt such an approach. FSCO s auto insurance branch needs a beefed-up investigations department to deal with the widespread abuse and fraud that is plaguing the system and driving up insurance premiums. In order to fulfill its mandate properly and be a modern regulator, FSCO needs to be nimble and have the latitude to deploy its resources. In order to be decoupled from government and political constraints, the governance model may have to be more arms-length. IBAO would like to see a model of accountability similar to certain legislative officers such as the Ontario Ombudsman and the Auditor General to root out and publicize abuses, while at the same time be able to adjudicate and punish violators through accepted due process. Consumer Protection and Promoting a Strong Financial Services Sector 6. Should the legislated mandates of the agencies explicitly refer to the goal of consumer protection, and should that goal be balanced with the goal of promoting a strong financial services sector? If yes, how? An emphatic yes. How? By adapting a proactive enforcement model as suggested in this submission. IBAO does not necessarily have the expertise or resources to recommend a specific model or method. We would hope the panel would conduct a jurisdictional scan to model an enforcement regime consistent with Canadian law. Appendix 1 RIBO Enforcement Model In our preliminary discussion with the Mandate Review Panel, IBAO was asked to provide how RIBO fulfills its mandate more effectively than FSCO through enforcement. The following is excerpted from page 6-7 of the RIBO Annual Report: There are two main types of complaints handled by the Complaints and Investigations Department. The first is finance related, and is usually generated as a result of a spot check or a broker review. The most common types of finance complaints relate to trust deficits, followed by inadequate books and records. The second type of complaint is conduct related and is normally initiated by a consumer complaint. 4

5 When a member of the public or a fellow broker makes a complaint, the Consumer Complaints Officer reviews it and decides whether or not there are probable grounds to substantiate the complaint against a registered broker. The complainant is asked to provide his/her written complaint to RIBO, along with any relevant supporting documentation. Once the written complaint is received by RIBO, an inquiry file is opened and assigned to an investigator for further examination. Additional evidence is gathered and statements are taken. If the investigation results in formal complaint charges being laid against a broker, then the matter is referred to a Complaints Committee for direction. If the Complaints Committee decides there is enough evidence to indicate possible misconduct, the matter is referred to the Discipline Committee for a hearing and final decision. RIBO received just over 1,200 inquiry telephone calls last year, which is approximately a 15% reduction over the calls from the previous year. The Consumer Complaints Officer attempts to resolve as many of the complaint calls within RIBO s jurisdiction as possible. Of the 1,200 consumer inquiry calls, approximately 90% of the telephone complaints were resolved in this manner. 105 new files were opened this year, which required investigation by RIBO staff. This year, we began with 50 active files, meaning investigations or complaints proceedings were already in progress from the previous year. 103 files were resolved and closed this year, leaving 52 in progress which will be carried over. The Complaints Committee consists of a three-member panel comprised of two brokers and a public member. The Complaints Committee met on 7 separate occasions. In each case, the broker who is the subject of the complaint is invited to the meetings. Brokers attended 90% of the time. During the Complaints Committee meetings, 6 of the files were closed in the broker s favour, with 19 cases raising issues regarding misconduct, resulting in referral to the Discipline Committee for further review. Of the 19 cases that raised issues regarding misconduct, 16 were referred directly to the Discipline Committee for hearings and 3 were offered a resolution on a consent basis. The Discipline Committee consists of a five member panel, comprised of four brokers and one public member. These panels held hearings on 7 days during the year. Four cases were presented for approval on a consent basis and 11 required hearings. Multiple penalties were assigned in many of the cases, which is the reason the dispositions in the chart below add up to more than the total of the cases presented. This year, the random spot-check program resulted in 258 spot checks of which only 2 resulted in any kind of formal proceeding. There were 5 spot checks in progress or with follow up at fiscal year-end included in the total number of 258 spot checks. This year, the goal is to conduct 300 brokerage visits. (emphasis added). 5