Compliance & Regulation
Insurance-related legislation and regulation
Complying with the many statutes and regulations governing the insurance industry may seem onerous for insurance brokers at times, but these regulations provide important protections for consumers. When it comes to safeguarding the assets and financial prosperity of Canadians, having stringent regulations in the financial services sector is necessary and beneficial.
Generally speaking, insurance companies are regulated federally by the Office of the Superintendent of Financial Institutions. Insurance intermediaries - brokers and managing general agents - are regulated provincially. Some insurance companies that do not operate nationally are licensed just in the provinces in which they do business. In B.C. the Financial Institutions Commission administers the provincial acts and regulations for the financial services sector, including insurance. The Insurance Council of B.C. is mandated by the Financial Institutions Act to administer licensing of brokerages and brokers.
The role of licensees
Licensees have a number of responsibilities that are set out in legislation, regulation, Insurance Council of B.C. rules or the Code of Conduct. Licensees' failure to perform these daily business requirements could result in the licensee being in breach of legislation, which could lead to disciplinary action. Licensees should be familiar with the information at Licensee Responsibilities on the Council website. Ignorance of the law is no excuse when facing a court judge or disciplinary hearing.
Knowing the source of these regulatory requirements can provide clarity and perspective that can help brokers provide more knowledgeable explanations to their clients. In addition brokers can effect change by advocating with insurers, regulators, Crown corporations, public utilities and governments. Individuals can make a difference.
The role of IBABC
The Insurance Brokers Association of B.C. is a trade association for property and casualty insurance brokerages in B.C. Membership is voluntary and about 90% of the insurance brokerages in B.C. are members. IBABC and its counterpart associations in every province are members of the Insurance Brokers Association of Canada. Many initiatives are shared across Canada by this association network, for example, the CAIB designation courses and the Broker Identity Program trademark symbol.
IBABC monitors and influences public policy for property and casualty insurance at all three levels of government: municipal, provincial and federal. In its government relations, IBABC facilitates grassroots interactions between member brokers and elected officials. As insurance professionals who are face-to-face with consumers all day every day and who know their needs and concerns, brokers bring a knowledgeable and unique perspective to the public policy arena.
IBABC reports to members about legislative and regulatory changes, providing education, interpretation and resources to assist members in understanding and complying with regulatory amendments.
How laws and regulations come into being
The primary function of the provincial government's Legislative Assembly is to legislate - that is, to make laws. When the House is sitting, elected Members of the Legislative Assembly (MLAs) study, debate and vote for or against the bills put before them.
MLAs are elected by people in their constituency, or riding. During election campaigns, it's helpful to know the viewpoints and party platforms of the candidates running in your home or business riding, as it will provide an indication as to how they are likely to vote on bills that come before them should they be elected to the Legislature (as the party forming government or in Opposition).
Bills are prepared and written outside the House, generally by the government ministry proposing them. This drafting process is done by government staff members, often with oversight by Review Committees of MLAs and in consultation with people in the private sector who bring expertise and recommendations. Most bills are public bills, prepared by government in response to a public need, and introduced by a cabinet minister. However, any MLA (in the governing or Opposition parties or as an independent) can also table a private bill, and these generally deal with a specific issue affecting a person or a group. In some cases private bills are tabled to bring attention to an issue, not with the intent that the bill will proceed any further.
Bills are introduced in the House and given "first reading," at which time MLAs vote to accept it for future debate. The bill is then discussed and debated in general terms in the House; this may take several days if the bill is complex or contentious. It then passes second reading and goes to a Committee of the Whole House, where changes (known as amendments) are proposed, a process that may take a few hours to several days or weeks. The bill then returns for a third reading, and once passed, the Speaker will declare it as an act, or statute. The Lieutenant Governor - the Queen's representative - comes to the Chamber to give the new act Royal Assent. The act then comes into effect at midnight on that day or on a proclamation date named in the act (sometimes an implementation phase is necessary).
The debate in the House is public. It can be witnessed in person from the visitors' gallery, or on the Parliamentary TV channel, and a transcript of the proceedings, known as the Hansard, is made public on the Legislative Assembly website.
Bills are usually written in 'plain language' for ease of comprehension by lay-people, and in general terms so that they can last for many years without needing revisions that would require a new bill to go through the same process. Specific details are then added to the act in the form of regulations, which require only an Order in Council and the signature of a cabinet minister to give them the same force of law as an act. So when searching an act for a specific reference it may be necessary to also search regulations.
Other resources at the Legislative Assembly website include an MLA search function, a chart showing the progress of bills during the current House session and a tutorial called "Discover Your Legislature".
Provincial public statutes and regulations are freely available through the BC Laws website, the online branch of the Queen's Printer. Federal statutes and regulations are available at the Laws Website of the Department of Justice.
Here is a list of some of the common statutes that guide the day-to-day functions of insurance brokers. It's not complete - several othersmake passing reference to insurance or deal with specialized aspects of it - but the ones in this list have been on IBABC's radar because of their importance to brokers or because of changes made in the past decade.
Insurance-related legislation and regulation: Provincial
Insurance Act
Sets out Statutory Conditions and other requirements for insurance contracts in the main areas of life, property and casualty, accident and sickness, group and others.
Recent changes: The Insurance Act received major amendments with Bill 6, the Insurance Amendment Act, in 2009 and with the regulations passed in December 2011 that amending act will become B.C.'s new Insurance Act effective July 1, 2012. Key changes include limitation period increased to two years from one; clarification that fire coverage includes fires resulting from any cause except those that are specifically excluded under regulation (no exclusion for fire following earthquake and no grand-parenting of this exclusion); a provision for innocent co-insureds to recover damages, and enhanced dispute-resolution mechanisms.
Broker relevance: The Insurance Act affects nearly every insurance policy a broker sells. Check with your carriers about enabling endorsements and any other transition plans.
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Motor Vehicle Act
Covers how motor vehicles and drivers must be licensed and how vehicles are to be operated. It includes vehicle and driver licensing, and the penalties for violations.
Several amendments over the past years have toughened up this legislation by: cracking down on street racers, giving police greater roadside authority, increasing safety requirements for drivers of commercial vehicles, banning cell-phone use while driving, banning smoking in motor vehicles when children are present, and mandating booster seats for children under 4'9".
Broker relevance: Many of an Autoplan broker's daily tasks involving license plates, vehicle registration and AirCare are dictated by this act. Drivers' failure to comply or to pay fines can lead to refuse-to-issue orders being placed on their records. Bill 14 (2010) increased the penalties and fines that brokers collect from drivers and added impound fees to the list of fines subject to refuse-to-issue orders.
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Insurance (Vehicle) Act
This act sets out insurance requirements for universal compulsory auto insurance and optional insurance contracts.
Bill 93 (2003) streamlined auto insurance statutes for B.C. The auto sections of the Insurance Act were moved to this act, establishing it as the legislation governing all aspects of vehicle insurance - both the basic insurance provided by ICBC and the optional coverage provided by ICBC and private insurers. Bill 93 amended other relevant legislation such as the Insurance Corporations Act and the Financial Institutions Act to bring them into line with the government's direction for auto insurance.
Broker relevance: Because this act required ICBC to operate its optional business more in line with how private insurers do, brokers in 2007 implemented new front-counter procedures for sale of basic and optional policies.
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The original act gave ICBC its mandate to be the monopoly supplier of compulsory auto insurance. Bill 58 (2003) appointed the B.C. Utilities Commission as the regulator responsible for setting ICBC's basic insurance premiums and for ensuring there is no cross-subsidization between ICBC's basic and optional operations.
Broker relevance: Government's approach with this legislation is in line with IBABC's recommendations for slow, incremental transition to increased competition and a more transparent and de-politicized management of the basic insurance.
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Financial Institutions Act
Governs all provincially regulated financial institutions including trust companies, insurance companies and credit unions. It also provides the licensing and regulatory framework for insurance agents, salespersons and adjusters under the supervision of the Insurance Council of B.C.
Updates to the FIA in 2004 gave the Insurance Council of B.C. rule-making authority. Since then some of the major rule changes have included the transition to continuous licensing, changes to the mandatory education credits, and the requirement for mandatory errors and omissions coverage.
Bill 5, the Finance Statutes Amendment Act (2009) came into effect Jan. 1, 2010, in response to changes to Part XIII of the federal Insurance Companies Act, which defined Canadian risks as those that are insured in Canada, rather than those that are located in Canada. The B.C. amendment clarifies B.C. jurisdiction over insurance risks located in the province and sets out requirements for agents placing business with unlicensed insurers.
Broker relevance: The Financial Institutions Act defines Level 1 licensees as salespersons and Levels 2 and 3 as agents, and these definitions have a bearing on licensees' entitlement to the provisions of the Employment Standards Act; see below. All licensees must be familiar with and adhere to the Council's Licensee Handbook and the Code of Conduct.
Notable Regulations: The Marketing of Financial Products Regulation requires that prior to the sale of an insurance product, disclosure be provided to the customer, outlining the relationship and extent of any business or financial interest, if any, the licensee has with the insurance company, whether commission is being paid (the amount does not have to be disclosed), and so on. While the regulation does not state disclosure must be in writing, prudent brokers do provide written disclosure and many use the "Section 90" disclosure form - a term that relates to the previous FIA. This regulation also allows for rebate to a maximum of 25% of the premium.
The Shared Premises Regulation requires that, with some exceptions, the business office of an insurance agency be located in premises that are separate and distinct from the business office of a savings institution.
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Privacy legislation
The three statutes guiding brokers are:
- The federal Personal Information Protection and Electronic Documents Act (PIPEDA) governs the collection, use and disclosure of personal information by private-sector businesses.
- Its provincial counterpart called the Personal Information Protection Act (PIPA) is substantially similar, but adds a "reasonable person" test, which offers slightly more latitude for implicit consent. Because labour relations are a provincial jurisdiction, this act includes provisions for the protection of personal information held by employers about their employees.
- The Freedom of Information and Protection of Privacy Amendment Act (FOIPPA) establishes privacy requirements for government ministries, agencies and Crown corporations such as ICBC.
Recent changes: The PIPEDA includes a mandate to be reviewed every five years. Amendments passed on Sept. 29, 2011, with Bill C-12bring the federal PIPEDA closer into line with what we already have in B.C.'s Personal Information Protection Act (PIPA) in two ways:
- Bill C-12's definition of "valid consent" is in line with PIPA's "implicit consent" in that consent is reasonably deemed to have been given if an individual grasps the nature, purpose, and consequences of sharing the information.
- It allows for an exemption to the consent requirement if the personal information is necessary to establish, manage or terminate an employment relationship, and the individual was informed that the information would be used for these purposes.
A significant amendment to PIPEDA is the mandatory provision that requires any "material breach of security safeguards" to be reported to the Information and Privacy Commissioner.
Broker relevance: For the PIPEDA and PIPA, brokers (not insurers) are responsible for the collection and transfer of clients' personal information. Clients' consent is required before collecting, using or disclosing their personal information. Brokers have to be able to provide a client with a description of what personal information they have on file, how it is used and safeguarded and with whom it is shared. Brokers have to have a complaint process in place and a designated privacy officer. For the FIOPPA, Autoplan brokers' privacy guidelines can be found on the Broker Extranet.
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Of particular note:
- Faxing and Emailing Private Information
- Privacy Breaches - Various Topics
- Privacy Proofing your Retail Business
- Guidelines - Social Media Background Checks
IBAC Privacy Tool Kit - email
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for information.
Strata Property Act
The Strata Property Act provides a framework for the creation and operation of strata developments in B.C., and sets out the guidelines under which strata corporations must operate. Major amendments to the Strata Property Act in 2000 introduced insurance provisions (Part 9) that required strata corporations to obtain liability insurance, and to review and report on insurance coverage annually. It further clarified that an insurance deductible is a common expense and its payment does not require approval of owners. Please see the October 2011 edition of BC Broker magazine for a detailed summary of Part 9's provisions and related issues.
Recent changes: The Strata Property Act was amended in 2009 and regulations supporting those amendments were finalized in late 2011. Stratas are now required to obtain depreciation reports that contain:
- A physical inventory of the common property including building systems.
- Anticipated maintenance, repair and replacement costs projected over 30 years.
- Financial forecasting with at least three cash-flow funding models.
The insurance implications of this regulatory change include:
- Increased requests for E&O coverage for reserve-plan practitioners.
- There could be D&O implications for strata councils in buildings where depreciation reports are repeatedly deferred.
- There already exists a statutory requirement for annual insurance appraisals for the building policy. Although some appraisers may be certified to provide depreciation reports as well, the insurance appraisal and the depreciation report are quite different and neither should be accepted in the other's place.
- It's possible that some of the water damage that has plagued residential properties (which is often exacerbated in strata buildings because of the unit density) may be mitigated over time with a more proactive approach to maintenance and upgrading of systems.
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Health Care Costs Recovery Act
Bill 22 (2008) allowed the Ministry of Health to recover all health care costs paid by government related to a beneficiary's injury that was caused by the wrongful act of a third party. The act does not apply to injury claims brought against wrongdoers having basic coverage under the Insurance (Vehicle) Act; i.e., ICBC-related claims.
The act paved the way for government to establish the Third Party Liability Department as part of the Accounting Operations Branch in the Ministry of Health. Insurers must, within 60 days after learning that an insured caused or may have caused the personal injury or death of a beneficiary, notify the minister of those circumstances and comply with the ministry's requests for information, documentation and subsequent contributions to health costs.
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Employment Standards Act
Sets out basic standards of compensation and conditions of employment. Amendments over the past decade have provided more flexibility in employee hours, reduced the length of time that employers are required to keep detailed employee records, imposed the strongest penalties in Canada for violations of standards, eliminated mandatory retirement at age 65 and increased the minimum wage. Regulations, enforced by WorkSafe BC, established safety standards for employees who work alone at night.
Broker relevance: Level 1 licensees (defined by the Financial Institutions Act assalespersons) are entitled to the provisions of the Employment Standards Act; they work inside the office under the supervision of others. Level 2 and 3 (agents) are able to work outside the office, manage their own time, and are more likely to work on commission and have employment contracts. Section 31 of the ESA states that "the act does not apply to an employee who is (g) a person licensed as an insurance agent or adjuster under the Financial Institutions Act." In practical terms, however, the level of job functions a licensee performs may determine whether or not ESA provisions are in order. It makes good sense for a brokerage - like any other business - to have equitable, defensible employment practices.
The Labour Standards Branch deals with union-related disputes. The Employment Standards Tribunal deals with non-union employment complaints. The Tribunal lists its decisions at www.bcest.bc.ca.
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Credit Scoring
Credit-based insurance scoring (CBIS) is insurers' use of an individual's credit rating. According to insurers credit-based insurance scores are accurate predictors of the likelihood that a policyholder will file an insurance claim. The scores are derived from credit information collected by credit reporting agencies. Consent to collect credit information is obtained by the broker at point of sale or renewal, often using the standard application for developed by the CSIO.
There has been extensive debate within the P&C insurance industry over the past several years about the practice of credit scoring. The Canadian Council of Insurance Regulators (CCIR) has invited consultation from the industry to inform its members' regulatory policies. IBABC has monitored the industry discourse and participated in these consultations.
B.C.'s Business Practices and Consumer Protection Act, s. 108, allows credit scores to be used in insurance underwriting. The act includes provisions for how any adverse actions arising from the use of credit information have to be handled.
While the practice of CBIS is allowed in B.C., prior consent of the client is required. The consents obtained by brokers cover the actions of the insurers and the credit-reporting agencies they employ.
Brokers will find it helpful to review the 2011 decision of the Privacy Commissioner in a privacy complaint involving collection of credit information by an insurer.
CCIR Credit Scoring Working Group
Office of the Information and Privacy Commissioner decision
Collecting and Using Client Information FICOM Bulletin INS-11-005 dated 5/27/11
Refuse-to-issue orders
B.C.'s public auto insurance system, which requires drivers to present themselves in person at an Autoplan brokerage for registration or insurance transactions, has proven extremely effective in collecting debts and fines owed to government. Government imposes refuse-to-issue (RTI) orders on a drivers' vehicle record for motor-vehicle fines and debts, impound fees and environmental compliance until those debts are paid.
In 2004 outstanding bridge tolls were added to that list with the passing of the Transportation Investment Act. The Golden Ears Bridge, which opened in 2009, was the first to be subject to RTI orders for outstanding bridge tolls. The new Port Mann Bridge, scheduled to open by the end of 2012, will also charge a toll that will be subject to RTI orders. In 2007 the Attorney General Statutes Amendment Act strengthened the collection measures available to the Family Maintenance Enforcement Program by directing ICBC to refuse to issue (RTI) vehicle licensing to FMEP debtors.
Some municipalities have applied to government to have their municipal fines subject to RTI orders as well. IBABC has in each case reminded those municipalities and the provincial government of the many reasons why using RTI orders for collection of municipal fines is not feasible or appropriate.
Insurance-related legislation and regulation: Federal
Bank Act
The federal Bank Act regulates the market conduct of the financial services sector. Insurance brokers, for nearly a century, have lobbied to maintain the restrictions in section 416 that state: 1) "A bank shall not undertake the business of insurance except to the extent permitted by this act or the regulations," and 2) "A bank shall not act in Canada as agent for any person in the placing of insurance and shall not lease or provide space in any branch in Canada of the bank to any person engaged in the placing of insurance."
Recent changes: In the periodic review of the act that took place during 2011 the government determined that it would only address technical issues, rather than contentious issues related to the bank's ability to sell insurance, thus ensuring the status quo is maintained. In early 2011 Federal Finance Minister Jim Flaherty revised regulations to clarify that banks are prohibited from selling insurance on their websites.
Broker relevance: The federal Bank Act maintains insurance as a financial pillar separate from other financial products so that its integrity and function of indemnification against pure risk can be maintained. Ensuring the Bank Act maintains insurance as a separate pillar and prohibiting banks from retailing insurance from their branches is the main public policy issue for insurance brokers and has been IBAC's 'prime directive' for about 80 years.
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Competition Act
The Competition Act is a federal law governing business conduct in Canada. It contains both criminal and civil provisions aimed at preventing anti-competitive practices in the marketplace.
Recent changes: On March 12, 2010, sweeping changes to the act came into force. Some of the notable changes were:
- Increased penalties for deceptive marketing practices and expressly empowering the courts to award restitution to victims of false or misleading representations.
- New guidelines for the mergers review process.
- Allowing the Competition Tribunal to award administrative monetary penalties against companies who have abused a dominant position in the marketplace.
Broker relevance: IBABC members should ensure their own business practices are in compliance with the Competition Act, and should comply with the act when volunteering with industry stakeholder groups, task forces or boards. Because association activities by definition involve the interaction of direct competitors, they can in some cases raise serious competition law concerns under the act. IBABC has developed a compliance policy and is operating in accordance with competition law best practices with regards to: information sharing, meetings, membership and general conduct.
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Do Not Call, Do Not Spam
Canadians can add their phone numbers (land lines, cell phones and fax numbers) to the National Do Not Call List (DNCL) list to prevent annoying telemarketing calls. Consumers can call 1-866-580-DNCL (3625) or register online.
Anti-spam legislation was passed in late 2010 and will come into effect once regulations are finalized.
Broker relevance: Best practices for telephone or email solicitations are fairly simple:
- Be aware of the guidelines (see websites listed below).
- Provide an opt-in mechanism to obtain consumers' consent to be contacted.
- Be aware of the limits for "pre-existing business relationship" exemptions (the consumer purchased a product within the past 18 months or made an inquiry within the past six months).
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