The Canadian life and health insurance industry has thrived and grown through the COVID-19 pandemic, continuing to protect millions of Canadians. But it also faces several different regulatory challenges that impact how it does business today, according to an industry association leader.
Denis Ricard, the newly elected chairman of the Canadian Life and Health Insurance Association (CLHIA), spoke to Insurance Business about the biggest issues on the association’s agenda.
“One of the biggest files that the industry has been working on up to is IFRS 17, a huge change in the accounting framework in Canada,” he said.
The international financial reporting standard on accounting for insurance contracts came into effect on January 1, 2023.
The implementation was seen as a major hurdle for insurance companies, fundamentally changing accounting, actuarial, and reporting practices. Insurers are also being hit via tax, products, and investments.
According to Ricard, the CHLIA has been “fully collaborating” with regulators to adjust the formula for IFRS 17 to make it more risk based.
“So, the more risk you take, the more capital you need to keep. There were a lot of changes that were needed last year,” he said. “The level of capital that companies need to keep versus the risk that they're taking is a very, very important aspect for the industry.”
While Canadian life and health insurers have put in most of the work to implement the changes, Ricard admitted that IFRS 17 has had a significant impact on the industry.
“IFRS has basically put short-term lenses to a long-term business,” he said. “It has led organizations to change their investment portfolio to better match the long-term liability.
“I think it's been quite positive overall in terms of risk management, but still, it will bring a bit more volatility. It was a huge effort, and it took a huge amount of work and effort from organizations. But overall, it's much, much better than what we expected.”
Tighter scrutiny is another key issue that’s on CHLIA’s radar, according to Ricard. Provincial regulators are raising their surveillance over market conduct to protect consumers and ensure their fair treatment in the insurance industry.
“There's been a real push from regulators be more transparent, for example, on the mutual fund side, there’s been some changes in terms of disclosure of costs to consumers over the years, and basically the same has been discussed with SEC funds,” he said.
“We do have a disclosure framework that is similar to the mutual fund, and that’s an area where the CLHIA has worked in close relationship or collaboration with the regulators to carry out in an orderly manner.”
Ricard noted other issues on fair treatment of customers that are being discussed with regulators.
“The CLHIA plays a role in creating consistency amongst the various insurers, or make suggestions and recommendation to the regulator to achieve the same goal and to make sure that [market conduct] is up to the standards,” he said.
A stream of regulatory changes in the industry in recent years has created a significant burden, especially on smaller insurance companies that must spend time and resources to implement changes.
“We've had over the last few years tons of changes in regulation,” Ricard said. “Even for big companies, these issues are hard to keep up with because they’re so demanding. Each of these initiatives all make sense, but it’s just the fact that they’re all happening at the same time.”
For instance, when IFRS 17 went into effect, the industry also had to comply with various privacy regulations that came up at both the federal and provincial level, according to Ricard.
The focus on compliance can have a negative impact on innovation in the industry as organizations direct a huge amount of investment into implementation, he added.
“As an advocacy organisation, we try to talk to the governments or regulatory authorities and say, ‘We understand your objective, but is there a way that we can do it that will be more orderly in terms of in terms of timing?’” said Ricard.
Amid these regulatory challenges, one of the biggest strengths of the life and health insurance industry is its adaptability – a quality that was on full display during the COVID-19 pandemic, according to Ricard.
“I’ve been in this industry for 33 years, and I’ve seen a lot of significant changes,” said Ricard, citing the huge consolidation in the industry that was accelerated by the demutualization of several major insurance companies.
While there are fewer players overall, Ricard was positive that the industry has maintained a high degree of competition in the market, something that’s conducive to innovation.
“We’re very innovative and we try obviously to out-compete our peers. The pandemic is a good example,” Ricard said. “I can't imagine a world without the private investments that were made during the pandemic. We very quickly all came up with virtual solutions for our clients and our distribution network.”
Today, some 29 million Canadians are covered by life insurance; around 27 million are covered by health insurance; and another 8 million are covered through retirement products, according to Ricard.
The industry is set for more growth amid the increased demand for financial and health protection spurred by COVID-19.
“The industry employs around 166,000 Canadians. It’s even bigger than it was pre-pandemic,” Ricard said. “We played a huge role during the pandemic, to continue covering Canadians, especially through our group benefit plans.”
The CHLIA aims to advocate for the life and health insurance sector on federal and provincial policy matters and regulations, according to Ricard. He hopes that the industry can play a significant role in creating positive solutions for Canadians.
“We don’t want to be an adversary to governments. We want to be part of the solution,” he said.
What do you think are the most significant issues facing Canada’s life and health insurance sector? Share your perspective with us in the comments.
