If Canadian provincial regulators decide to emulate developments in the U.K., insurers could be held accountable for unhappy clients looking to blame someone for buying the wrong coverage.
“What happens when the provincial regulators have to walk the talk?” said Neil Parkinson, a partner at KPMG, at an Insurance Bureau of Canada symposium on regulatory affairs. “A total of 18 billion British Pounds in settlements by U.K. banks related to selling payment protection insurance products were paid out on products that were not needed, already covered or not disclosed. Is caveat emptor dead for financial institutions? Do international influences stop with OSFI, or is the provincial level next?”
Parkinson’s reference to OSFI (Office of the Superintendent of Financial Institutions) comes on the heels of an overview of the ongoing development of Insurance Core Principles (ICPs) by the International Association of Insurance Supervisors. He cautioned that the IAIS’ work on ICPs are not just about governance and solvency, and questioned whether regulators understand the permutations of complying with those principles.
“They are not just about governance,” he warned. “Just look at Chapters 18 and 19 (referring to the section on Intermediaries and Conduct of Business). What is troubling is the role in promoting public trust and confidence in the insurance sector – ensuring customers are sufficiently informed before buying, and the responsibilities regarding conflicts of interest, including remuneration incentives.”
The language – already adopted by the U.K. – would place insurers on the hook if applied here, he said. (continued.)
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“Should you make sure your customers aren’t doing something stupid with your product?” he asked. “The U.K. attitude is ‘they haven’t gone far enough.’”
In addition to the settlements handed out by British banks, Parkinson cites “enforcement actions on the sale of overly complex interest rate derivatives to business,” adding that if adopted here, these are “all things that you (Canadian brokers) can be hung on.”
Although not every development in Europe comes across the ocean to Canada, giving the example of the prohibition on gender-based rating in the European Union, Parkinson does point out that Canadian regulators are active participants in IAIS and are aware of the ICPs, and may in fact adopt those international principles.
“It only takes one significant provincial regulator to take this on,” he said, “and then you have the risk of attracting scrutiny on product suitability, particularly for highly profitable products; on the quality of oversight of sales and distribution – such as the use of metrics – and an increased focus on customer outcomes.”
