The Canadian insurance industry needs to get better at picking responsible distributors, managing conflicts of interests and training agents on product knowledge to ensure they follow the fair treatment of customers guidance, the Canadian Council of Insurance Regulators (CCIR) said in a report on Wednesday.
The review “showed that most of the issues identified were due to a lack of insurers’ robust monitoring and supervision of independent distribution channels,” the CCIR said.
Selecting distributors
The process insurers had for choosing which distributors can offer their products was not always adequately documented. Even where processes were formal, insurers frequently lacked detail or left out fair treatment of customers-related criteria.
In addition, selection criteria were often based solely on performance metrics like sales volumes, so insurers couldn’t reasonably assure regulators that distributors had the ability to ensure the fair treatment of customers.
The CCIR recommended insurers implement a process that include selection criteria relating to the fair treatment of customers, and formally document all expectations communicated to distributors. Insurers also need mechanisms to hold distributors accountable.
Conflicts of interest
Some insurers didn’t have clear expectations on how distributors, especially independent sales channels, should address conflicts of interest, the CCIR found. And some insurers that did communicate expectations had no way of knowing if distributors followed through.
“As a result, those insurers were unable to obtain reasonable assurance that their expectations for addressing conflicts of interest were being adequately met and that [fair treatment of customers] was thereby being ensured,” the report said.
The CCIR said insurers need to make it clear how distributors should manage conflicts of interest and ensure that they’re compliant.
Inconsistent distributor training
Some insurers forbade distributors from developing their own specific training courses on product characteristics and risks, while others allowed it. The CCIR found both approaches acceptable, but insurers are responsible for ensuring that salespeople have the right knowledge.
Insurers that prohibited distributors from making their own training materials did not always enforce this stipulation, even though it was written into contracts, the CCIR found. Plus, several insurers didn’t make training on the fair treatment of customers available to distributors.
When distributors were allowed to develop their own training materials, insurers didn’t always define what the training needed to cover. Hence, regulators weren’t satisfied that salespeople had the right knowledge for the fair treatment of customers.
Insurers should clearly define responsibilities for training development, communicate expectations on the fair treatment of customers and ensure that expectations are being met, the CCIR said.
The CCIR said it hopes the report clarifies expectations and that insurers would self-assess the shortcomings in how they currently supervise sales channels.
The review included 19 insurers in the life and health and property and casualty insurance sectors, selected based on the nature, size and complexity of their activities in participating jurisdictions.