How You're Protected
British Columbians benefit from a well-regulated insurance industry, and IBABC members are proud of their contributions to the development of this public policy over many decades.
Governing P&C insurance
Insurance differs from other financial products
Principles and structure of insurance sales
You can expect a fair transaction
When things don't go as expected
Identifying an IBABC-member broker
GOVERNING property and casualty insurance
Insurance is part of the financial services sector, and as such, is regulated by the Department of Finance federally and the Ministry of Finance provincially. In broad terms, insurance companies come under federal jurisdiction, although some smaller insurance companies headquartered in B.C. are regulated provincially; sales intermediaries (agents and brokers) come under provincial jurisdiction. At both government levels, life and health insurance is regulated separately from property and casualty insurance.
Insurance companies are regulated federally under the Insurance Companies Act and other statutes. There are also provisions in the Bank Act and the Cooperative Credit Associations Act governing banks and credit unions respectively that have a bearing on the sale of insurance.
Federally regulated insurance companies must report certain financial information to the Office of the Superintendent of Financial Institutions. This information is made public and can be viewed on OSFI's website. In essence, insurance companies must demonstrate that they are maintaining adequate reserves in relation to the number of insurance policies they have issued so that they will be able to pay all claims, even in the event of a major catastrophic loss.
Insurance companies obtain revenue from two main sources: from the premiums they charge for insurance policies and from returns on investments while holding money to pay future claims. When income levels are good (due to premium pricing, investment returns or lower-than anticipated claims), insurance companies tend to lower their rates to attract more business. When income levels are low, they have no choice but to raise rates to meet solvency requirements.
The federal government provides consumer information and protection through the Federal Consumer Agency of Canada.
Canada's property and casualty (P&C) insurance companies fund a special program, approved by government regulators, to protect policyholders and claimants. In the unlikely event of the collapse of a P&C insurer in Canada, the industry-funded, non-profit Property and Casualty Insurance Compensation Corporation will respond to claims of policyholders under most policies issued by P&C companies. You don't need to apply for protection; it is extended automatically to eligible policies.
The trade association for insurance companies is the Insurance Bureau of Canada.
Insurance sellers, or intermediaries, are regulated provincially. The Insurance Act mandates minimum requirements for insurance contracts in B.C. and the Financial Institutions Act (FIA) governs the market conduct of financial institutions and their intermediaries. The act gives the Financial Institutions Commission (FICOM) authority to administer statutes for the financial services sector in B.C. and the Insurance Council of B.C. to administer licenses for brokerages and individuals. The Insurance Council administers licenses in two streams: life insurance and general (property and casualty) insurance. Individuals must have a valid license to sell P&C insurance products in B.C. Consumers can look up the license status of any individual at www.insurancecouncilofbc.com.
FICOM does not regulate the Insurance Corporation of B.C., which is itself a Crown corporation. ICBC has a legislated monopoly for universal compulsory auto insurance in B.C. under the regulatory supervision of the BC Utilities Commission. ICBC and private insurance companies offer optional auto insurance.
The Insurance Council of B.C. is the licensing and disciplinary body for insurance brokerages, as well as for individuals who work as salespersons, brokers, agents and adjusters. Visit the Council's website to find out if a certain individual or company is licensed to operate and whether there are any restrictions on that licence.
The Insurance Brokers Association of B.C. (IBABC) is the trade association of property and casualty insurance brokerages in B.C. It is the main provider of pre-licensing and mandatory continuing education for brokers. IBABC is the 'voice' of the insurance brokerage industry in B.C. and represents the interests of its members and consumers to government and to industry stakeholders. Membership is voluntary, and about 85% of the insurance brokerages in B.C. are members of the IBABC.
IBABC is a member of the Insurance Brokers Association of Canada. IBAC is the national trade organization that brings together and represents the 11 regional and provincial associations of property and casualty insurance brokers in Canada. These associations represent approximately 30,000 insurance brokers in virtually every community across the country.
insurance differs from other financial products
Reforms to the Bank Act in 1992 and 1999 were significant in that they marked the end of the traditional four pillars of the financial services industry that had been in effect since Canada's Confederation in 1867. Replacing the principle of the four pillars - banks, trust companies, insurance companies and securities dealers - each with their own distinct regulatory structure, was one of "universal banking," i.e., that all financial institutions could offer all financial products and services.
A notable exception to the move to "universal banking" in these reforms was that deposit-taking institutions would not be permitted to retail insurance; this activity would be reserved for qualified, licensed insurance brokers and agents.
Insurance was excluded from the "universal banking" philosophy because it is fundamentally different than the other products. Where other financial products and services may involve some element of managing risk, they do so on speculative risk, the chance - or in some cases, the promise - of financial gain. Insurance indemnifies against pure risk, that is, the chance of financial loss without financial gain. Insurance transfers risk from the owner to the insurance company. Insurance protects the core assets that people cannot risk losing - their homes, personal belongings and livelihood - and makes it possible for people to buy homes and start businesses.
Because of the difference between insurance and other financial products, the Bank Act restricts the market conduct in how insurance is sold. Banks are permitted to sell certain authorized types of insurance such as creditors' insurance or mortgage insurance, and are allowed to promote those products. Banks are allowed to own insurance companies or brokerages that operate in separate and distinct premises from bank branches, but banks are prohibited from selling or promoting unauthorized types of insurance from their retail branches.
These prohibitions make it possible for consumers to access insurance products and service from professionals for whom insurance is their primary, and often only, line of business. That access to unbiased expert advice helps Canadians better manage their risk and ultimately prosper.
Principles and structure of insurance sales
Utmost good faith
Utmost good faith (in Latin, uberrima fides) is a legal doctrine governing insurance contracts. This means that all parties to an insurance contract must deal in good faith, making a full declaration of all material facts in the insurance proposal.
The insured party must reveal the exact nature and potential of the risks being transferred to the insurer, while at the same time the insurer must provide clear information as to the coverage contained in the insurance contract. The agent/broker is not a party to the insurance contract, but must adhere to the principle of utmost good faith by acting with honesty and integrity in ensuring the potential contract fits the needs of the insured, and by only recommending products that meet the customer's stated needs.
All persons engaged in the sale of insurance must pass a pre-licensing exam and police clearance. Once licensed they must adhere to the principle of utmost good faith, as outlined in the Insurance Council of B.C.'s Code of Conduct. The Council will investigate legitimate complaints about the conduct of a licensee under its jurisdiction.
Regulation sets out minimum standards of disclosure, to be made verbally or in writing, of any details that could be considered a conflict of interest. Examples of such potential conflicts of interest could include a financial relationship between an insurer and a brokerage, or a fee paid to someone who refers a customer.
In addition to this regulation, the common law of agency should prevent any financial relationship between an insurer and a brokerage from impacting on the impartial advice and service an insurance broker provides to a customer. The insurance brokers' duty to place the risk in their clients' best interests, and their duty to disclose, supersedes any considerations of the brokers' financial obligations to one insurer over another. Any customer who feels the licensee has failed in either of these duties can initiate an investigation of the licensee's conduct and possible disciplinary action.
High ethical standards
Members of the Insurance Brokers Association of B.C. voluntarily adhere to levels of disclosure and accountability over and above regulations. Please see You can expect a fair transaction.
All insurance brokers must meet mandatory continuing education requirements during the term of their licenses to be eligible for renewal. The IBABC is the primary provider of high-quality pre-licensing and continuing education for the insurance brokerage industry in B.C.
Errors & Omission
It is mandatory in B.C. for insurance brokerages to carry errors and omissions insurance. This insurance covers the broker for any loss sustained due to rendering or failing to render professional services.
It's necessary to obtain private information about a client in order to recommend the best coverage, and to assess ongoing needs. Insurance brokers meet the requirements of federal and provincial privacy legislation in the collection, storage and sharing of personal information.
As experts with constant daily contact with the needs of the public, insurance brokers are uniquely qualified to promote the interests of their clients in a number of ways. First and most important is when a client suffers a loss and files a claim. Insurance brokers work on behalf of their client to get the best possible compensation from the insurance company. Brokers also serve on a wide range of committees, councils and task forces with insurance companies, government and other stakeholders to improve insurance policy wordings distribution systems. Insurance brokers influence public policy by making recommendations to government. (See Advocacy.)
How insurance brokerages are paid for their services
Insurance brokerages get paid a commission by the insurance companies whose policies they sell. Brokerages don't determine the prices of insurance policies or their commission levels. Out of that commission brokerages pay for office expenses and wages for employees. Commission is earned over the term of the policy. If the policy is cancelled before the end of its term, the policy-holder receives a refund, and the brokerage only receives remuneration for the earned portion.
It is an allowable practice to charge a service fee to a client, either instead of collecting a commission or in addition to receiving a commission from an insurer. However, when a service fee is charged, it is necessary to disclose, in writing, the amount of such a fee and the fee must be shown separately from the insurance premium. The disclosure of a service fee must be made in such a manner that will leave no doubt in a client's mind that a fee, in addition to the insurance premium, is being charged. All invoices and other relevant documents provided to a client must clearly distinguish between the insurance premium and any service fees.
In B.C. the Financial Institutions Act outlines the level of disclosure that the broker is required to make to customers about their remuneration. This disclosure, which can be made verbally or in writing, outlines the particulars of the relationship between the insurance broker and the insurance company (including financial interests and whether commission is payable). In addition, insurance companies disclose compensation information on their websites.
How insurance brokers balance the interests of insurance companies and customers
Agency relationships are common in many professional areas. Even though insurance brokers may have contractual relationships with the insurers they represent, in law the insurance broker is the agent of the insured - not the insurance company - and as such owes the insured careful and prompt attention to instructions, expert advice and competitive pricing of products. However, insurance brokers and agents must still meet certain obligations to insurers, including collection of premiums and the passing on of relevant information obtained from the client.
You can expect a fair transaction
Insurance protects your most important assets and makes it possible for you to obtain credit, free up capital and create wealth. Property and casualty (P&C) insurance brokers take their role in protecting people's assets very seriously.
When you buy P&C insurance you can expect to receive a fair transaction based on these principles:
- Your interests come first, before the interests of P&C insurance brokers and the companies they represent.
- You should expect to have your P&C insurance needs assessed by that individual and, when he or she makes a recommendation, to be offered products that meet your needs.
- You should expect a P&C broker to enable your purchasing decision to be based solely on the attributes of the insurance product or service being offered, including the value of the services of the P&C broker.
- You should expect your instructions to be carried out faithfully. Your P&C broker must not transact business which is unlawful.
- You should expect your transactions to be handled with professionalism by a qualified P&C broker. If you have any doubts you may inquire about the P&C broker's qualifications or conduct with the appropriate regulatory body. In B.C., the Insurance Council of B.C. has the government mandate to regulate and govern the insurance brokerage industry. For information go to www.insurancecouncilofbc.com.
- You should expect to have your personal information safeguarded and only used for the purpose for which it was originally collected, unless you have given permission for it to be used for other reasons. Your personal information may be divulged without your consent to law enforcement agencies when required or authorized by law.
- You should expect to be informed if he or she has a conflict of interest, and you should be given the opportunity to halt further dealings with him or her.
- You are entitled to receive all relevant information before making a decision about a financial product. This includes product features, risks and benefits, and the company involved.
- You should expect to have any complaints dealt with in a timely and forthright manner. In the event that a dispute with an insurance industry practitioner cannot be resolved, you should be given information about available avenues for resolving your complaint.
wHEN THINGS DON'T GO AS EXPECTED
In your dealings with a P&C insurance broker, you should always seek further information if you do not feel comfortable with your level of understanding of products or services that you are purchasing. Asking questions will help you avoid any potential misunderstandings regarding the information that is being presented to you.
Occasionally a misunderstanding or failed expectation can occur. In that event, first let the manager at the brokerage know about your problem. In many cases it may have been due to a lack of communication and can be easily rectified. Give the brokerage manager the opportunity to correct the problem.
Next, there are a number of organizations that can assist you, depending on the nature of the problem:
Identifying an IBABC-member broker
This information is brought to you by the members of the Insurance Brokers Association of B.C. To find an IBABC-member broker near you, click here.