Low interest rates worldwide have prompted international bodies to re-evaluate the regulatory framework governing insurers and agents worldwide, and Canadian advisors are being urged to monitor the changes.
“Low interest rates have been a key interest for regulators worldwide, since they are causing the financial liabilities of insurers to increase,” said Grant Swanson, acting superintendent of insurance for Toronto-based Financial Services Commission of Ontario. He spoke at the Toronto Summit of Independent Financial Brokers of Canada held at the Toronto Congress Centre on Wednesday.
Advisors must pay attention to these worldwide regulatory trends, Swanson added. “While agents are only responsible for regulations in their jurisdictions, international regulations are lead indicators of where local regulation could be headed,” he said.
In response to financial turmoil facing insurers worldwide, the International Association of Insurance Supervisors, a group of international regulators, re-outlined its Insurance Core Principles, a framework all insurers and agents worldwide are expected to follow.
In the past, Insurance Core Principles by IAIS were focused on the business of insurance and aimed to ensure that insurers kept sufficient reserves to stay solvent. Today, IAIS’ outlook has shifted to the market conduct of companies and agents, Swanson said.
Within the Insurance Core Principles, advisors should pay most attention to the duty of care guideline, which requires insurers and agents to put the client’s interest first.
“Agents and insurers must treat clients fairly, which means full disclosure about how the low interest rate is impacting the products they are buying,” said Swanson.
Insurers must also market and sell insurance products with the client’s interest at heart. The principles also state that agents and brokers should be subject to ongoing supervisory reviews.
Currently, FSCO does not carry out ongoing supervisory reviews such as audits on agents or brokers. However, the international principles are a strong indicator of the direction FSCO will be taking with audits in the future, Swanson said.
The G20 has also issued new principles impacting the insurance industry. At the last summit in October, members put out a document called G20 High-Level Principles on Financial Consumer Protection.
“They wanted to create a framework that will overarch all aspects of financial services,” said Swanson.
These principles address everything from disclosure and fair treatment of consumers to responsible business conduct. The result of these principles will be a worldwide Financial Sector Assessment Program, where each government will evaluate how well these principles are being adhered to within its respective financial sector.
The Canadian Council of Insurance Regulators has already established a working group to ensure Canada is meeting the G20’s outline standards. Chaired by Quebec, the working group will evaluate how these standards are being met across the country.
“Agents are not affected by these standards, unless they become implemented in Ontario,” added Swanson. “They are leading indicators and it’s a big mistake for agents not to be aware of what is happening around the world.”