FSCO reports decrease in insurance advisors’ compliance rates

Many life insurance advisors in Ontario are not complying with certain regulatory requirements and best practices, reveal recent examinations conducted by the Financial Services Commission of Ontario (FSCO).

Izabel Scovino, director, market regulation branch with FSCO, presented some key results from the regulator’s insurance agent compliance examinations conducted in 2015-16 and 2016-17 at the Independent Financial Brokers of Canada’s Spring Summit in Toronto on Wednesday.

FSCO conducted approximately 200 examinations in each of those years, Scovino said, checking for compliance with its regulatory requirements as well as industry best practices. The results show a decline in advisors’ level of compliance in many areas over the two-year period.

“There’s been a decrease in the compliance rate, not an increase, which we had hoped for,” Scovino said. “There are areas, for sure, where there is some work that is required.”

The decrease is partly a result of changes to methodology of the examinations, she noted. Specifically, in 2016-17, FSCO focused its examinations on insurance agents with a high or medium risk of non-compliance, such as those who had been the subject of complaints, or who had been disciplined by another regulator.

“We changed our risk selection, so that what we were doing was targeting the higher-risk agents,” Scovino said.

One area with a notable decline in compliance was continuing education (CE). Only 85% of agents examined in 2016-17 had completed their CE requirements, down from 95% the previous year.

Also dropping considerably was compliance with the requirement for agents to disclose to their clients in writing the names of providers of financial products or services that the individual represents. The proportion of agents who met that requirement fell to 72% in 2016-17 from 94% the previous year.

The proportion of agents with active errors and omissions (E&O) insurance also declined slightly year-over-year, to 97% from 98%.

The percentage of advisors adhering to certain industry best practices also declined during this two-year period. For example, the percentage of agents who had kept records of their client discussions dropped to 71% in 2016-17 from 81% the previous year, and those who documented their recommendations to clients plummeted to 71% from 89%.

Over the same period, the proportion of agents who had documented a needs analysis fell slightly, to 69% from 71%, while the percentage of those who kept records of policy illustrations also slipped slightly, to 85% from 86%.

In some areas, however, compliance rates went up. The proportion of advisors who were meeting their requirement to disclose conflicts of interest in writing to clients went up slightly to 81% in 2016-17 from 79% the previous year.

In addition, the proportion of agents who had prepared a letter of engagement to provide to clients increased to 79% in 2016-17 from 71% in 2015-16.

“On the whole, there hasn’t been a significant improvement,” Scovino said, “but we do recognize that in some areas, for example, with respect to the letter of engagement, there has been some improvement.”

Out of the 200 examinations conducted in 2016-17, FSCO made 61 recommendations for further regulatory reviews or enforcement action

In the year ahead, the fair treatment of the customer will be one of the main areas of focus for FSCO, Scovino said. From insurance agents’ perspective, that means the regulator will be looking closely at product suitability and disclosure.

“Our focus still is going to continue on ensuring compliance with the law,” Scovino said, “but with the view of the outcome of treating consumers fairly.”

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