The Financial Services Commission of Ontario (FSCO) is preparing to embark on in-depth, on-site reviews of life insurance agents to gauge their compliance with industry regulations and best practices, said Izabel Scovino, director of FSCO’s market regulation branch, at the Independent Financial Brokers of Canada’s (IFB) spring summit in Toronto on Tuesday.
Specifically, FSCO is planning to conduct about 200 compliance examinations over the next year, beginning in June, Scovino said. Although some agents will be selected to participate on a targeted basis, others will be selected at random.
“The primary focus of the examination is going to be on compliance with the Insurance Act and its regulations,” Scovino said.
In particular, FSCO will be verifying that insurance agents are meeting their licensing requirements, including having valid errors and omissions (E&O) insurance, and the completion of continuing education credits, she said.
The review will also assess insurance agents’ disclosure documents to ensure compliance with various point-of-sale statutory disclosure requirements and adherence to industry best practices, such as completing a needs assessment as part of the insurance sales process.
The regulator launched a pilot program for the review earlier this year, in which it conducted approximately 10 on-site reviews, Scovino said.
The compliance review follows a broader suitability review that FSCO conducted in 2013, in which it surveyed more than 1,300 insurance agents to collect information on sales practices. The regulator found that agents were generally applying appropriate practices as part of the sales process, however it determined that some were falling short of their obligations related to disclosing conflicts of interest and documenting their processes.
“Not all agents are providing written disclosure to their clients with respect to real or potential conflicts of interest,” Scovino said. “That is actually a requirement in Regulation 347 of the Insurance Act.”
FSCO staff will contact insurance agents who are selected to participate in the examination to arrange a date and time for the on-site review, Scovino said. FSCO expects that the on-site reviews will generally be a full day in duration.
Within 30 days of the completion of the exam, participating agents will receive a report highlighting the findings of the review and any relevant recommendations. In some cases, insurance agents will be required to respond to the recommendations within a specific period of time.
Meanwhile, FSCO will also be implementing a new system this summer to ensure that insurance agents are maintaining E&O insurance coverage, as required under the Ontario Insurance Act, Scovino said.
“One of the key challenges that FSCO currently has is that other than through examinations or audits, there really isn’t a good way to know whether agents are continuing to have mandatory E&O coverage,” Scovino said.
In the past, the regulator has periodically conducted audits in which it would ask agents to provide proof of their coverage, she said. The results of those audits have consistently demonstrated a compliance rate of over 95%.
However, FSCO does not currently have the capability to monitor the status of all insurance agents’ E&O coverage on an ongoing basis. Ontario’s auditor general identified this as a problem in its 2014 annual report, finding that almost a quarter of active life insurance agents had missing or incomplete E&O insurance data in FSCO’s database.
“They identified that we don’t have current information on our fiscal records,” Scovino said. “In order to address that, we are going to make changes to our system.”
Specifically, she said the new system will identify cases in which an agent’s E&O insurance information is not current, and will prompt those agents to log into the system to update their policy information and expiration date. FSCO will also begin notifying agents 30 days prior to the expiration date of their policy, asking them to update their information.