Insurance regulators are consulting on a potential ban of upfront commissions for segregated funds and individual variable insurance contracts (IVICs).
The industry has been awaiting the consultation paper, released Thursday, since the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) earlier this year said they planned to consult on upfront commissions.
At that time, the regulators also called for insurers to stop new sales of segregated funds with deferred sales charges (DSCs), so as to align with the June 1, 2022, ban in the securities space. And they said insurers should expect a ban of DSC sales by June 1 of next year.
At issue are investor protection concerns and potential regulatory arbitrage when different products (i.e., segregated funds/IVICs versus mutual funds) have different rules for compensation.
In Thursday’s consultation paper, the regulators said upfront commissions in segregated funds present investor concerns such as conflicts of interest and alignment of cost with services.
The consultation aims to understand the impacts of a ban on — or other changes to — upfront commissions as well as a reasonable time period for the insurance industry to adapt to any changes.
The “key driving outcome” of addressing upfront commissions is the fair treatment of customers, the paper said, as described in guidance.
As such, the regulatory approach will target such things as resolving conflicts, enhancing customer awareness of compensation, aligning commissions with services provided, and avoiding the mis-selling of segregated funds and IVICs over other products due to differing compensation.
The deadline for comments to the consultation paper is Nov. 7.