The Canadian Life and Health Insurance Association Inc. (CLHIA) is urging regulators to establish a licensing and oversight regime for insurance distribution firms to facilitate proper oversight of insurance advisors, among other initiatives intended to contribute to the fair treatment of clients.
CLHIA, in its submission to the Financial Services Commission of Ontario's (FSCO) draft 2017 Statement of Priorities, expresses its support for FSCO's two key goals for the year ahead: treating consumers fairly and enabling innovation.
On the topic of the fair treatment of consumers, CLHIA suggests there's room for improvement in the regulatory framework. Specifically, CLHIA suggests that changes are needed in distribution to better serve the needs of clients and help insurers meet their compliance obligations.
"We believe that a regulatory licensing and oversight regime is required to establish distribution firms ([managing general agencies], national accounts, captive sales forces) as distinct, licensable entities with certain oversight responsibilities in order to provide consolidated oversight of agents," CLHIA says in its submission, urging FSCO to take a leadership role on that initiative.
CLHIA also supports a requirement for insurance advisors to conduct a needs analysis prior to recommending a product and to provide a letter after the sale explaining why the recommended product is suitable for the client.
Currently, Quebec is the only province in which advisors are required to conduct a needs analysis — and none of the provincial regulators require advisors to provide a "reason-why" letter.
CLHIA recently updated its industry guidelines to include a recommendation that advisors provide this type of "reason-why" letter to clients as part of their regular sales practices.
The association also calls for more detailed cost disclosure for segregated funds. Specifically, CLHIA urges FSCO and other insurance regulators in its submission to collaborate with securities regulators to create closer alignment in disclosure for seg funds and mutual funds.
With respect to FSCO's goal of enabling innovation, CLHIA lauds the regulator for acknowledging the importance of financial technology (fintech).
"We believe FSCO's risk-based approach to regulation combined with its commitment to stakeholder engagement will set the ground work for an effective approach to enabling innovation in Ontario's financial services sector while finding the appropriate balance for consumer protection," CLHIA's submission says.
Collaboration and information sharing among stakeholders and regulators will be critical to facilitating innovation, according to CLHIA.
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