New rules in Quebec would allow consumers to buy life insurance online

By Megan Harman | November 2017

Quebec is poised to give insurance companies the green light to sell life insurance products online formally. In addition, the province proposes to loosen the rules regarding the sale of certain insurance products - such as mortgage life insurance - by individuals who aren't licensed insurance advisors.

Those proposed changes, included in Bill 141: An act mainly to improve the regulation of the financial sector, the protection of deposits of money and the operation of financial institutions, have some insurance industry players lauding the provincial government for modernizing the rules. However, others in the industry are concerned that the proposed framework would enable more consumers to buy life insurance without advice.

"I'm concerned that we could end up with individuals being hurt through self-directed online purchasing of insurance contracts [because they won't] really understand what they're purchasing," says Greg Pollock, president and CEO of the Toronto-based Financial Advisors Association of Canada (a.k.a. Advocis).

The long-awaited bill, tabled by Quebec Finance Minister Carlos Leitão in early October, features almost 500 pages of proposed amendments to dozens of laws. The goal of the initiative is to modernize regulation of the financial services sector and strengthen consumer protection. (See story at the top of page 1.)

As well, some stakeholders suggest that the proposed legislation is a step backward in consumer protection.

"The reaction on the Street is that this regime is quite permissive," says Annick Demers, associate lawyer with Blake Cassels & Graydon LLP in Montreal. "There's some concern that consumers may not be as well protected."

Among the most notable changes impacting the life insurance industry will be a framework for the online distribution of insurance. Specifically, the bill proposes to modify several laws surrounding insurance distribution to specify that those laws apply even in cases in which there is no intermediary of "a natural person."

However, the proposed bill specifies that insurers selling insurance online must provide consumers an opportunity to contact a representative for advice, if desired.

Life insurance companies are pleased with the new framework, says Lyne Duhaime, president of the Canadian Life and Health Insurance Association Inc.'s Quebec division.

"The bill modernizes current laws," she says. "I think it will allow the distribution of financial products to be more flexible."

Although many insurance companies already sell certain life insurance products online, there aren't any specific rules governing this distribution channel because the existing laws regarding distribution have been in place for many years.

The decision to introduce a framework for online insurance distribution was driven by consumer demand, Duhaime says.

Although some insurance products - such as certain types of permanent insurance - are likely to continue to require the advice of a licensed advisor, she says, the Internet provides a feasible distribution channel for many types of insurance.

"We know that consumers want to buy products online," Duhaime says. "This will allow the industry to evolve with the needs of the consumer."

Insurance advisors such as Daniel La Tour in Kirkland, Que., agree the insurance industry must modernize - and the regulatory framework must keep up with those changes.

"New Age technology brings us new challenges and new ways of doing things, and we really haven't delved into how we're going to protect the consumer," La Tour says. "We're finally getting around to imposing conditions on whoever distributes financial products online so it's not the Wild West."

However, advisors such as Nelson Hodge, group insurance consultant in Île-Perrot, Que., are concerned that the new framework will lead to more policies being sold by carriers directly to consumers rather than through advisors.

"My sales are going to go down," he says. "For the insurance companies, it's a big expense to pay commissions and renewals. This could save them a lot of money."

If policy-makers are going to enable online distribution, Pollock says, it's critical that consumers are made aware of the option - and importance - of speaking to an advisor.

"There has to be a lot of direction [given] to individuals who are online to think about getting advice from a professional advisor," he says.

Bill 141 also proposes changes to the laws surrounding the distribution of insurance products without a representative, including products such as mortgage life insurance sold by bank employees.

For example, the bill proposes to eliminate an entire set of requirements mandating that a specific disclosure document, called a "distribution guide," be provided to clients who are buying an insurance product without the advice of a licensed advisor. That document must include specific details about the insurance product, such as exclusions and details about the claims process.

Although Bill 141 specifies that insurers still must ensure that clients buying insurance without the involvement of an advisor are provided with specific information about the coverage they're buying, the bill dials back many of the prescriptive disclosure requirements that exist.

The elimination of those rules came as a surprise, Demers says: "I did not expect that [the bill] would completely remove those obligations."

The prospect of a looser framework for the sale of certain insurance products is a concern, Pollock adds: "We generally have a concern when there are different regulatory requirements for different groups of individuals selling similar if not identical products."

Therefore, Pollock believes, all individuals selling life insurance products should be required to have the same level of licensing.

The prospect of bank employees selling insurance with fewer requirements is of particular concern in light of media reports revealing high-pressure sales tactics used at some banks, La Tour says. "We hear about pressure selling and having to meet sales quotas," he says. "That's not the way to go, because the consumer really doesn't have the opportunity of reviewing his or her needs."

Duhaime suspects that if Bill 141 is adopted, the corresponding regulations could include more specific requirements in this area.

"We have noted that all references to the distribution guide have been removed, but we might have regulations that will [indicate] how it will work," she says. "At this stage, we're not clear."

© 2017 Investment Executive. All rights reserved.