Comments: Draft Guidance Fair Treatment of Consumers



May 28th, 2018

We would like to thank CCIR and CISRO for inviting FSCA in commenting on the Draft Guidance for the fair treatment of consumers as part of the public consultation on this subject.


The Financial Services Consumer Alliance (FSCA) is an informal alliance of consumers whose sole objective is to increase consumer protection in the financial industry. To achieve this goal, FSCA has taken a different approach by empowering former and current insurance executives and other parties in anonymously sharing information about the financial industry. We then corroborate the information received through two independent sources of information. Because of the possibility of retaliation, FSCA protects its anonymous sources of information by ensuring these sources cannot be identified even by FSCA.


This means that FSCA is able to provide in depth advice about changes to regulations or implementation of new regulations through the use of information not available to other parties. We are sharing part of this information in this submission and our contribution to the Guidance for the fair treatment of consumers.




Consumers want to clearly know who they are dealing with and in particular with the intermediaries they may end up using when purchasing insurance. This is however impossible for consumers to achieve since the term intermediaries has such a broad meaning encompassing many terms such as agent, representative, broker…; terms that have different meanings across different provincial jurisdictions.


We believe that the first step in clarifying who is dealing with the consumer in order for this consumer to be fairly treated is for regulators to recognize the duality of intermediaries.


All intermediaries operate under a double mandate defining who they are acting for with most provincial jurisdictions only recognizing one of the mandate only while the tribunals and judiciaries have in their decisions recognized the existence of two mandates.


The first mandate is between the intermediary and the insurer. In most provincial jurisdictions, this is defined as the agent mandate (in Quebec this is defined as the representative mandate and in some other provinces it is defined as the broker mandate). In all provinces, an intermediary must sign an agent contract to have a mandate from the insurer, and the insurer can only offer this mandate to intermediaries who are licensed.


Recommendation #1: Insurers should only offer contracts to intermediaries in compliance with the jurisdiction where the intermediary is licensed and where he will be soliciting insurance business. This means that for example in Quebec, where only a representative can offer insurance, the intermediary should be offered a representative contract based on Quebec laws and regulations and not an agent contract; same for provinces where it is a broker and not an agent who can sell insurance. Words do matter.


Recommendation #2: Insurers limit the authority of their agents through the agent contract and will use this has a way to deny their responsibility in the actions of its agents. Several court cases have pointed out that these limitations were unfair to consumers since the agent contract is not disclosed to the consumer and the consumer has no way of knowing the true authority of the agent. Judges have therefore used the rule of what a regular person would have believed that authority to be in order to define whether or not an agent was acting for the insurer. We believe this to be unfair to the consumer. We believe that insurers should make their agent contract public and that the consumer has a right to know of any contractual obligations or limitations that would influence his decision in using a particular intermediary.


It is important to note that intermediaries can have a single mandate with one insurer which is defined as being a captive agent or can have mandates with many different insurers which is not recognized explicitly in many provinces. For our purpose, we will define this intermediary as being a multi-insurers agent (agent who has signed an agent contract with more than one insurer.)


In most provinces, the intermediary must disclose to the consumer which insurer he can represent. In our opinion, this is not working and often does not occur.


Recommendation #3: Regulators should develop different licenses reflecting whether or not an intermediary can sell the products of one insurer or multiple insurers. The insurers that an intermediary represents should be listed on the license registry of the province where the intermediary is licensed and all intermediaries should have to provide a link to that registry on any of their web sites or internet advertisements.


We have seen web sites of intermediaries and even insurers stating that it was the responsibility of the Consumer to find out if the insurer or intermediary was licensed to solicit insurance in a particular province. This is not acceptable. As licensed entities regulated by the government, insurers and intermediaries should clearly state where they are licensed to act in any forms of advertisement used to solicit the public and provide a link to such information.


The second mandate is between the consumer and the intermediary. This mandate is made up of two components or duties. The first duty is what we call the duty of advice where the intermediary must determine the needs (an obligation) and possibly the wants (an opportunity) of the consumer and develop a financial solution to solve that need or want. The second duty is to find the best product in terms of price and value that will resolve that need or want. This second duty (product recommendation) can be restricted by the mandate/contract between the insurer and intermediary.


Recommendation #4: Only Quebec has any forms of regulations that apply to the mandate between consumer and intermediary by making the duty to advise an obligation subject to a code of conduct of ethics. All provincial jurisdictions should have regulations applying to the mandate between consumer and an intermediary defining the duty to advise and duty to provide a product that is suitable (in a restricted mandate) or a product that is in the best interest of the consumer (in an unrestricted mandate).


Consumers should be able to easily know who is restricted to act or to offer a product versus who is NOT restricted to act or offer a product.




In the Guidance draft, it is stated that intermediaries “must comply with the duties that are associated to their registration or license” This seems simple but often it is not. Life insurance is a contract and the jurisdiction applicable to this contract is where this contract was formed. For Canadians who move their residence from one province to another, this can complicate their financial situation and access to the right intermediary.


For example, let’s assume a consumer living in Quebec has $100,000 in mutual funds and $100,000 in segregated funds. This consumer decides to move to Ontario. With mutual funds the process for this move is clear and simple. The consumer would have to find a new investment representative licensed in Ontario where the mutual fund would be transferred in kind to that new representative as we are dealing with trust units. If the Quebec representative was to continue servicing and taking mutual fund deposits on behalf of the consumer, he would be committing an infraction because each new deposit to a mutual fund is considered a new sale and therefore the Quebec representative would be selling in the province of Ontario where he is not licensed.


For life insurance and segregated funds, which are a life insurance product governed by insurance laws, this is not the case. We are dealing with a contract which does not change or can be transferred when the consumer moves to another province. Transfer in kind cannot be done for a contract.


New deposits to a segregated funds are not considered new sales since they are premium payments. As a result, when the consumer moves to Ontario, who is responsible for the segregated funds purchased in Quebec? Can the servicing and the handling of the new deposits to the segregated be handled by an Ontario intermediary unlicensed in Quebec even if the segregated fund as a contract is still under Quebec jurisdiction? Does the Ontario intermediary has the knowledge of Quebec laws to correctly administer this contract? If the Ontario intermediary commits a fault, which regulator is responsible? If it is the Quebec regulator, this regulator would have to charge the Ontario intermediary with having dealt in insurance in a province where he is not licensed.


We have surveyed insurers and intermediaries and nobody could provide any answers to these questions. Some insurers have basically indicated they simply did not know and prefer to stay silent on this issue with all hoping that when faced with this complexity, consumers would simply cancel/surrender their segregated funds and transfer these funds IN CASH to their current jurisdiction. This is unfair to the consumer who may be forced to surrender some important forms of guarantees.


RECOMMENDATION #5: Laws and regulations pertaining to insurance should reflect the fact that insurance is a contract not portable across provinces and come up with a regulatory solution as to whom will be responsible for these contracts at point of sales and at point of service. We strongly encourage regulators to come up with a form of uniform service license which would allow intermediaries to service but not sell new insurance contracts across Canada.




In the Guidance draft it is stated that to ensure the fair treatment of consumers, insurers “ are responsible for fair treatment of Customer s throughout the life-cycle of the insurance product”. Our research has uncovered several breaches of this responsibility. As we will demonstrate under the Conduct of Business Section, Insurers are simply NOT servicing policies appropriately throughout the life-cycle of the product.




The Guidance draft lists the expectations applying to insurers and intermediaries in the conduct of their business in order to fairly treat consumers. Below we have listed the expectations NOT met by insurers and intermediaries:


act in compliance with the laws, regulations and guidelines to which they are subject


Our research shows that insurers tend to operate or tailor their insurance operations based on a Pan-Canadian system. Insurers want to operate uniformly across the country and therefore many insurance executives believe that conducting their business based on the Insurance Laws of one province will make them compliant in all other provinces.


When we questioned some of these executives, we were astounded by their ignorance as to the differences existing between provincial jurisdictions in regards to insurance laws.


RECOMMENDATION #6: Regulators must cooperate between themselves and recommit to make laws and regulations as uniform as possible across the country. Regulators should also come up with a national course targeting insurance executives involve in the marketing and sale of insurance educating them of the Insurance Laws and their differences for the various provincial jurisdictions.


Each regulator of each province should come up with a certification program for Insurance Branch Manager, MGA Directors, Insurance Wholesalers… It is amazing to see that an agent or representative, in order to pass their license, must take an exam on the Insurance Laws of the jurisdiction where they will be licensed WHILE anyone with absolutely no knowledge can be put in charge of managing agents or representatives selling insurance. It seems the only qualification required is the ability to entertain agents and representatives.


In the Mutual Fund Industry, anyone designated as a branch manager or alternate branch manager of an MFDA member must pass the Branch Managers’ Examination Course where the objective of the course is to develop a skill set and knowledge base that supports an individual responsible for supervising mutual fund dealing representatives. Why is this not a requirement in the insurance industry?


How can you expect the best from insurance agents and representatives when the worst is allowed to lead these agents and representatives?


promote products and services in a clear, fair and not misleading manner


When it comes down to the sales of Universal Life, this requirement is simply ignored. We have evidence in writing demonstrating the willingness of insurance executives to ignore this rule because they believe that the insurers are fully protected against any civil claims because consumers have to sign a disclosure page stating that the values showed on a Universal Life illustration are not guaranteed.


Many insurers believe this give them the right to build illustration software to produce illustrations that are absolutely imaginary and where the cash values showed on the illustration cannot be achieved even if the illustrated rate of return is achieved by the consumer. Insurers have used fictitious illustrations to promote the sales of Universal Life as an investment. We have proof of this.


To be fair to consumers, Universal Life illustrations should:


Allow the agent and representative to illustrate a variable rate of return instead of a constant rate of return when investing in an equity type of investment where volatility will determine the gains or losses of the consumer.


If the option of doing a variable rate of return is not made available, an additional disclosure page should be required explaining to the consumer that the use of a constant rate of return, when in fact the rate of return will vary on a monthly basis, could result in the cash values showed on the illustration being overstated by as much as 40% even if the consumer achieves an average rate of return that equals the constant rate of return used on the illustration.


On the illustration, it should be clearly indicated that the illustration rate does not include the cost of the Management Expense Ratio (MER).


If a Bonus exists and is credited for the Universal Life, and this Bonus is used to return part of the MER back to the consumer, this Bonus cannot be included/credited in the illustrated cash values if the MER is not also included/debited.


provide Customer s with timely, clear and adequate pre-contractual and contractual information;


Insurers want to sell Universal Life as an investment and use this product to compete against Mutual Funds and Segregated Funds. However there are absolutely no regulations applying to Universal Life such as the requirement to provide a prospectus for a Mutual Fund. In fact, segregated fund contracts are exempt from the prospectus requirements of securities laws because of their guarantees. Such guarantees do NOT exist under Universal Life and therefore they should be considered securities and a prospectus should be required if the Universal Life is sold as an investment.


take into account a Customer ’s disclosed circumstances when that customer receives advice and

before concluding insurance contracts.


Our research shows that the consumer is getting no information on the investment he is selecting for his Universal Life. The illustration provides no information. The information is usually found in the policy contract. However this contract is provided to the consumer at policy delivery when he has been approved for insurance which can be up to 6 months after the illustration has been produced and application submitted. This is not fair for the consumer and this practice cannot be tolerated any longer.


Illustration software allows the agent and representative to print a commission page allowing the agent or representative to disclose his remuneration associated with the sale of a life insurance product. Up to 50% of the remuneration of the agent or representative comes from the Sales Bonus that will be paid to him by the insurer. You would therefore assume that this bonus would be shown on the Commission illustration page. However it is not included and therefore this page misrepresents the level of commission that will be paid by the insurer.


avoid or properly manage any potential conflicts of interest, before concluding an insurance contract;


We have great concerns about the increase number of MGAs owned by insurers. There is a risk of a conflict of interest and it is not clearly disclosed to the consumer.


In fact, we have documented the practice of some insurers of not paying a Commission Bonus if the agent or representative does not sell the insurance product of the insurer owning the MGA. Also if the agent sells the products of another insurer, his sales credits are not accounted in various incentives such as qualifying for a sales conference in an exotic location.


Recommendation #7: It is not a surprise that we recommend that the industry do away with incentives solely based on sales such as qualifying to exotic trips under the guise of a conference. MGAs should be required to state if they are owned in whole or in part by an insurance company and the MGA should not be allowed to implement a remuneration scheme that would favor the insurer which owns the MGA.


service policies appropriately throughout the life-cycle of the product;


The existence of orphan policies where no licensed intermediaries is responsible for servicing the policy contrary to what is stated by the insurer to the consumer proves that insurers are not willing to deal fairly with consumers and that they are NOT committed to servicing a policy through the life-cycle of a product.


We have concrete proof and evidence that one insurer went as far as removing the name of agents from many life policies in order to increase the lapse rate of this block of policies. Without the name of an agent on these policies, lapses notices were NOT sent and were instead destroyed. Unaware that their policy was in danger of lapsing because the consumer believed a licensed intermediary was looking after it when it was not the case, many consumers lost and are still losing their insurance coverage on this basis.


Servicing commission paid from the premium paid by consumers can be paid to former intermediaries who are no longer licensed and who legally cannot provide service on these policies since they are no longer licensed. Insurers are not required to inform the consumer that their intermediary is no longer licensed and instead ask that the consumer contacts the former agent for changes in regards to their policies. Some insurers close a blind eye to the activities of former intermediaries who are no longer licensed and who still continue to provide service on what they have sold in the past.


Basically the consumer is required to pay for a service that cannot be provided to him. Is this fair? In the mutual fund industry there is a class action against firms that have charged service fees when no service was provided. Will this need to happen in the insurance industry for this unfair practice to stop?


Insurers are paying service fees to MGAs which is usually equaled to 3% of the inforce premiums. This is the fee that the insurer is paying in order to outsource its service obligation to the MGA. Instead, MGA have used this service fee as a way to entice other intermediaries doing business with competing MGA to change MGA by paying this service fee as a top up to the remuneration of the intermediary. There is even a court case in Quebec where a representative sued the MGA for failing to meet its promise to pay him the service fee on the policies he sold. When surveyed, insurance executives of various insurance companies, have assured us that they would not tolerate this practice and that the service fee had to go towards servicing policies and COULD NOT BE uses to influence intermediaries in placing business with another MGA. They could not explain the civil lawsuit that demonstrated that MGAs are not following this guideline.


Recommendation #8: Quebec is the only province that has made the existence of orphan policies illegal in this province. Other provinces should follow the example of Quebec.


Payment of the MGA service fee by the MGA to an agent or representative should be considered as a conflict of interest and should be made illegal in all provinces.


The only way to manage permanent insurance through its life-cycle is through the use of in force illustrations which allow intermediaries to adjust the original illustration to the current economic environment and current state of the policy.


Insurers have moved away from providing in force illustration software to their intermediaries and if these illustrations are made available it is through a special request. The need to do in force illustrations is not advertised by insurers because they want their intermediaries to concentrate on selling insurance instead of servicing insurance they have sold. In all insurance companies surveyed, not one intermediary could indicate to us any form of training on in force illustrations that should have been provided by insurers. Training solely focuses on new sales techniques and not servicing techniques. Considering the complexity of managing a Universal Life this lack of training is a deterrent to the fair treatment of consumers.


Fair Treatment of Customers


minimizing the risk of sales which are not appropriate to the Customer s’ needs


It has been proven that Universal Life illustrations can be easily used by an intermediary to commit fraud against a consumer. Still, insurers are doing nothing to improve their illustration software. In the USA, the regulators have implemented regulations pertaining to the use of illustrations to sell insurance in order to reduce the opportunity of fraud such as having a maximum illustration rate for illustration software.


Currently intermediaries can used any illustration rate as there are no maximum in the software. Intermediaries such as Thibault (one of the biggest case of fraud in Quebec) have used this to create illustrations at more than 12% (16% rate of return when the MER is added) to support their fraud. A maximum rate of return of 6% is needed for illustration software in order to minimize the opportunity of fraud and misrepresentation.


In order to sell an insurance product, all provincial jurisdictions require that the intermediary do a need analysis. However the intermediary is not required to submit this need analysis to the insurer with the application for insurance. Why?


We still see today intermediaries selling low level amount of insurance below the need of the consumer in order to sell permanent insurance for higher commission when temporary insurance was required. The only way to prevent this is to have the need analysis submitted with the application and the insurer to question the intermediary when permanent insurance is sold which does not cover the need for insurance.




In the last twenty years, we have seen insurers investing less and less in the development of their employees. Taking myself as an example, as soon as I took employment with Maritime Life, this company encouraged me and supported me in obtaining my FLMI, which is one of the greatest insurance courses allowing employees to learn about everything that applies to insurance; from law, accounting, actuarial sciences, marketing, customer service… The knowledge I acquired through the FLMI program served me well during my career allowing me to make the right decision for the consumer and company when dealing with complaints and disputes.


This has changed and most companies, as a cost saving opportunity, do not invest in the education of their employees. As a result, employees are promoted in positions where they do not have the necessary knowledge to make decisions that would fairly treat the consumer. For example, I had an intermediary who made a complaint against our Director of New Business. The intermediary had delivered the policy, collected the premium and sent everything to the New Business department. The New Business lost the premium cheque and was demanding that the intermediary go to the consumer to get a new cheque. The intermediary however refused demanding that the New Business Department provide a letter of apology explaining what happened. The New Business Department refused and the Director of the New Business Unit stated that the policy was not in force and that the client was not insured. In talking with the Director of the New Business Unit, it became evident that he had no knowledge of Insurance Laws and as a result did not understand when the insurance coverage of a life policy becomes effective something that is well covered in the FLMI courses.


Basically, you cannot have a consumer driven corporate culture if the executives leading that culture have little knowledge about insurance. You can’t drive a culture that is empowered to deal with consumers if the employees have little knowledge of insurance. We could state that insurers put more value in hiring executives that have been formerly trained in business (MBA) with no knowledge of insurance than hiring competent executives trained and experienced with insurance.




In managing their relationships with Intermediaries, insurers are expected to have effective systems and controls in place and communicate clear strategies for selecting, appointing and managing arrangements with Intermediaries as part of their overall distribution plan.


This however cannot happen unless there are “CLEAN SIGHT OF DISTRIBUTION RELATIONSHIPS BETWEEN INSURERS AND INTERMEDIARIES”. This is not the current state of the insurance industry and distribution relationships is a hodgepodge of sales and servicing contracts making it impossible for insurers or MGAs to monitor their intermediaries.


Many insurers allow intermediaries to have multiple agent contracts by contracting through different distribution channel. An intermediary can have a sale contract with an insurer through an MGA and contract directly with the same insurer. Intermediaries when transferring distribution channel or MGA can elect to not transfer their existing block of business to their new MGA or distribution channel and as a result intermediaries can have dozens of servicing contracts with the same insurer in addition to the selling contract.


In fact, our research has revealed something that is hidden. The life insurance business of an intermediary is owned by the MGA through the service fee that is paid by the insurer to the MGA. If the MGA refuses to release this service fee to the new MGA, then the intermediary must continue to service his block of business through the old MGA while putting his sales through the new MGA. When this happens several times if the intermediary changes MGA often, the business of the intermediary becomes so fragmented that it is impossible for the insurer to control and manage the intermediary.


In order for the old MGA to release the block of business and its servicing fee, the new MGA must purchased that servicing fee based on a multiple of its value. The new MGA often refuses to buy the transfer fee of this block particularly if there is a perceived liability risk with the service of this block. The new MGA will take the new business of the intermediary but not his past business.


Recommendation #9: All insurers should have a policy that automatically transfer the block of business to a new MGA if the intermediary changes MGA. This should not be optional. A new MGA should not be able to contract a new intermediary if it is not willing to take the service of the existing block of business of this intermediary.


In addition, intermediaries can contract with as many MGA as they want with each MGA demanding a share of the business of this intermediary which creates a potential conflict of interest.

Recommendation #10: Intermediaries should not be able to contract with as many MGA they want. We suggest a maximum number of 2 MGAs.


As previously mentioned the agent contract should be disclosed to the consumer as this is where the authority of the agent is defined.




implement the necessary mechanisms to promptly advise regulatory authorities if they are likely to sustain serious harm due to a major operational incident that could jeopardize the interests or rights of Customer s and the organization’s reputation.


Why would an insurer inform the regulators about the actions of an intermediary when the actions of the intermediary could negatively impact the insurer? We have examples of many cases where the insurer decided not to inform the regulator about the infractions of an intermediary.


In one of the cases, we have emails between executives of an insurer discussing the actions of an agent who had falsified several signatures of his clients. Since the actions of the agent could cast a negative light on the insurer, the executives decided not to report this intermediary to the regulator. While the insurer canceled the agent’s contract for cause, that agent was allowed to conserve his book of business. Since insurance policies are contracts and can’t be transferred to another insurer, the intermediary was allowed to convince his clients to surrender their policies with the existing insurer by replacing them with new policies with a new insurer. To justify these surrenders the agent was allowed to tell his clients that the products that he had sold originally were now inadequate and needed to be replaced. The clients in question lost many of their guarantees under their segregated fund.


In another case, the agent name was Thibault and he was responsible for a high number of fraud which led to one of the biggest bankruptcy in the Quebec financial industry for an intermediary. This agent, years before, had bribed an employee of the insurer using the drug addiction of the employee to convince him to inflate the values of his life policies which the agent then used to borrow funds against these policies. When the insurer found that out, the insurer canceled the contract of the agent and even sued the agent to recover what they had lost because of this fraud. This was never reported to the regulators and the agent continued to sell with other insurers resulting in hundred more people losing their money because of the fraud of this agent.


Recommendation #11; The law should specify that all cases where an agent has a contract canceled by an insurer that this insurer must report the agent and the reason for canceling the contract to the regulator.




Remuneration, reward strategies and evaluation of performance take into account the contribution made to achieving outcomes in terms of fair treatment of Customers.


Remuneration for insurance, based on a heaped scale instead of a level scale, is by its nature unfair to consumers. However added incentives add to this level of unfairness. This includes:


1)Trips to exotic locations, marketing dollars…all incentives based on sales that are not disclosed to consumers.


2)Sales Bonus which can double the remuneration which is usually not disclosed.


When an intermediary signs a direct contract with an insurer (no MGA involved), the sales bonuses can be retroactive to all sales made since the beginning of the year and as a result can lead to a substantial payment at the end of the year if the intermediary concentrates his sales with that insurer. If there was an MGA involved this would not happen as the bonus offered by the MGA would be calculated based on all sales made with all insurers and not one particular insurer.


We are particularly concerned with MGA owned by insurers. In those instances, we have seen these MGA offer a sales bonus to the intermediary if that intermediary sells the product of the insurer than owns the MGA. If the intermediary sells the product of another insurers, the intermediary will not get a sales bonus, his sale will not count towards qualifying toward the yearly exotic conference trip… This is unfair to the client because the insurer is applying a large amount of influence in trying to convince the intermediary to recommend the product of that insurer even if it is not in the best interest of the Customer.


Chargebacks are another area of concern. With large commission paid upfront, if the policy is canceled by the Customer, the intermediary is left owing a large amount of money to the insurer. To pay this money, the intermediary’s only choice is to sell more life insurance from this particular insurer. It was disclosed to us, that there has been intermediaries who have owed more than a million dollars in chargeback to a single insurer.


Recommendation #12: Insurers should be obligated to report intermediaries to the regulator who have chargebacks of more than $10,000 with a single insurer and such insurers should be forced to implement a special compliance plan to monitor the sales of this intermediary.



We are worried about the trend of intermediaries in using cloud based applications. This can involved need analysis, financial planning software. Intermediaries are entering the personal information of their clients in these applications where the data will reside on the server of a third party without the authorization or knowledge of the client.


Recommendation #13: Confidentiality laws should be respected and enforced!




Insurance contracts are contracts of good faith and this good faith not only applies to Consumers but it also apply to the insurers. In additional, it has been recognized in various legal precedents that Consumers are at a disadvantage when dealing with an insurer and that contracts should be interpreted from that basis.


We are concerned with a trend involving the unfair pricing of life insurance product used as a way by an insurer to increase its sales and to gain an unfair competitive advantage against other insurers.


Actuaries are required through the code of ethics of their profession to fairly and conservatively price their insurance products. However many insurers are designing insurance products with guarantees that are conditional and which can be unilaterally removed or changed by the insurer. As a result, the insurer can unfairly price an insurance product while protecting itself by being able to increase its pricing in the future. There is no way for the Consumer to know this and to know that the pricing assumptions used by the insurer cannot be supported in the future in any conditions.


FSCA is now dealing with such a legal case involving an insurer where we are claiming that the insurer used an interest rate in its pricing of its segregated funds guarantees that could not be supported and that the insurer should have known this violating its legal duty to use conservative pricing in the development of its insurance products.




Consumers can purchased insurance through various distribution channels offered by insurers. Each distribution channel has to treat the consumer differently because of contract or legal considerations. These channels are:


The intermediary to insurer channel: This channel applies to the single insurer agent who is usually captive to a particular insurer and therefore sell under the name of that insurer. These single insurance agents usually operates from an insurer branch. The single insurance agent can sell insurance from other insurers if his insurer has created an MGA to specifically allow the single insurance agent to sell insurance products of other insurers under its supervision and control. Access to other insurers can be also given to the single insurance agent through the use of inter-corporate contracts (insurer to insurer contract).


Recommendation #14: Using a captive intermediary has its positives and negatives. To be fair to the Consumer this has to be disclosed to the Customer. Captive agents should not used terms such as “independent” even if they can sell the product of other insurers. The test is simple. If an agent sells insurance under the name of an insurer he is never independent even if sells the product of another insurer. Consumers must understand that the block of business of the intermediary is owned by the insurer who ultimately is responsible for the service of all policies sold by the intermediary. We also believe that the insurer, for captive agents, is responsible for the advice given to the Consumer and is part of the advice mandate between agent and Consumer.


The intermediary to insurer channel can also also apply to multi-insurers agent since many insurer allow that kind of intermediary to sign a contract directly with the insurer even if the intermediary is independent. We consider the agent to be independent if he sells insurance under his name and not the the name of the insurer. This can lead to abuses as this type of contract is largely dependent on sales where the agent can negotiate a sales Bonus which could be as large as the sales Bonus paid to a MGA (which pool the sales of hundred of agents). This can quickly lead to abuses in order for that agent to meet the sales’ volume requirement in order to qualify for his sales bonus. This make the agent particularly vulnerable to chargebacks. In Quebec, we have seen for one insurer, 75% of its sales in this channel being based on different strategies involving rebating.


Recommendation #15: We don’t see any positives for consumer in dealing with multi-insurer agents that contract directly with the insurer when this multi-insurance agent can contract through a MGA to get access to various insurers removing most sources of conflicts of interest or incentives to commit infractions. As a result, this channel should disappear as it is unfair to Consumers.


The intermediary to intermediary channel: This channel often referred as the MGA channel applies to multi-insurers agents or representatives who want to be perceived as being independent by the Consumers when doing a product recommendation.


The main message of this channel transmitted to Consumers is about the advantage of dealing with someone who is independent. It is important to underline that when the intermediary is acting as the agent of the insurer under the agent mandate, he is not independent. It is when the agent is acting under the Consumer mandate in order to provide advice and to recommend the best product that the agent is acting independently of the insurer.


Recommendation#16: The regulators should ensure that the representations made to he public as to the independence of the agents are true and accurate and should ensure that no insurers can restrict or offer incentives that would influence that independence without it being disclosed to the Consumer.


Consumer to insurer channel: This channel allows the consumer to buy insurance directly from the insurer without the use of a licensed intermediary. There are no mandates as there are no agents or representatives and the insurer has no mandate to provide financial advice or recommend a product.


Under this channel, there is two categories of distribution/offerings. There is the purchase of insurance directly from the insurer under a group insurance contract held by a unlicensed third party. This includes:


Bank mortgage insurance: where the lender has a group insurance contract with the insurer and can sign up those who are taking a mortgage with this lender for mortgage life insurance…


Employer group insurance: the employer signs directly or through an intermediary a group insurance contract with the insurer and each employee can buy additional and optional insurance directly from the insurer without the use of a licensed intermediary.


Retailer insurance: where a retailer signs a group insurance contract with an insurer allowing to offer insurance in its stores or web sites…


Association and institutional insurance: where an organization such as universities can offer insurance to its alumni without the involvement of a licensed intermediary’s


Direct insurance: where an insurer offers its product directly to the public without the used of a licensed intermediary. The main difference here is that the Consumer is purchasing an individual contract which he will own instead of being added to a group contract that he does not own.


Recommendation#17: We do not believe that you can put the Jinny back in the bottle. Insurance sold directly to the public without the use of an intermediary has been going on too long to stop this practice. Is advice necessary for the public to get this kind of insurance/ In the end this should be the consumer’s choice whether or not he wants advice. However we recommend that in all cases, the option to get advice should be offered to the public. Finally 100% of the consumers don’t understand that under a group contract they do not own the insurance and if the contract is canceled between the insurance and the organization, the consumer will lose his insurance. This should be clearly disclosed to the consumer.




There are different parties that can be involved in the business of insurance through the internet in addition to insurers and intermediaries. These third parties are the information web site and Comparison/Quote web sites.


The main difference between the information web site and Comparison/Quote websites is that the latter require the customer to provide his personal information such as email address in order to have access to the services offered by the web site. Information web sites only offer information for free without any prerequisites.


Recommendation#18: Comparison/Quote web sites should be regulated and licensed


Richard Proteau

Consumer Advocate

Financial Services Consumer Alliance

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