Financial advisors have little to fear from incidental sellers of insurance, according to some financial services professionals in provinces that have already adopted rules facilitating the practice.
In February, New Brunswick became the latest jurisdiction to legislate rules governing sales of incidental insurance, which refers to coverage sold in conjunction with related products and services provided by people who are not fully licensed insurance agents. Common examples include travel insurance sold by a travel agent and funeral-expense insurance sold by a funeral director.
In Alberta, where a similar restricted licensing regime has been in place for more than a decade, full-service advisory teams should not view incidental insurance sales as a threat to their business, said Kevin Haakensen, portfolio manager with Clear Sky Private Wealth in Calgary.
“Our clients realize the difference between a one-off sale and a team of individuals with solid experience and credentials working seamlessly on their behalf to integrate insurance for consideration in an entire picture of one’s planning journey,” Haakensen said.
At Affluence Partners Inc., also in Calgary, certified financial planner Stephanie Stewart remembers some of her licensed colleagues worrying that the changes would gut their life insurance business as financial institutions stepped in to sell creditor insurance products tied to certain loans and mortgages. However, she said, those fears never fully materialized.
“While mortgage brokers and banks are really quite aggressive with how they position these products, I have found that if you have a financial planning relationship with your clients, and they happen to be getting a mortgage or they renew one, you are able to have those conversations and explain the difference between the types of coverage,” Stewart said.
The one drawback, Stewart said, was that mortgage brokers who might have been providing referrals to a financial advisor for insurance sales would no longer provide that business. So, advisors who rely on mortgage brokers for insurance referrals should consider forming a referral relationship with a lawyer or other professional, Stewart said.
The rules approved by New Brunswick’s Financial and Consumer Services Commission (FCSC) create a new “restricted insurance representative” licence, open to businesses in specified fields that meet errors and omissions insurance requirements. Employees of corporate licence-holders are then permitted to sell certain types of insurance — depending on the nature of their services — including travel insurance, mortgage insurance, cargo insurance, and creditor’s disability and creditor’s life insurance.
Darcy Ammerman, partner with the national financial services group at McMillan LLP in Ottawa, said New Brunswick’s restricted licensing regime is largely consistent with existing regulatory frameworks in Manitoba, Saskatchewan and Alberta.
British Columbia is likely to join the list of incidental insurance regulators in the future, after the province launched a consultation on the subject in late 2022. The Insurance Council of British Columbia had previously granted licences restricted to the sale of one or more specific products, but ceased issuing new permits in 2021 after a legal review determined the council’s process was not fully compliant with provincial law.
“It’s clear that they are planning to reinstate the process, but it is taking some time,” Ammerman said, adding that she would like to see other provinces follow suit — in part to improve the uniformity of insurance laws across the country.
“It’s a more streamlined approach that creates new business opportunities for entities like banks to come into the marketplace, because it’s so much less onerous for them to obtain a licence,” Ammerman said. “Of course, there will be some tension with insurance agents who aren’t employees of banks, but overall, I think it’s a great enhancement.”
Advocis is less enthusiastic about the prospect of a nationwide restricted licensing regime.
James Ryu, the organization’s general counsel and vice-president of advocacy, acknowledges that incidental insurance sales have a place in the market, but said he would prefer to see the more complicated products excluded from restricted licensing regimes to ensure consumers are guided by fully qualified advisors.
“Life and health insurance should not be an incidental purchase,” Ryu said. “They are, by their very nature, complex products that could have very significant impacts on consumers. We’re concerned that people who do not understand the gravity of the decisions they are making will end up disappointed when they need to call upon the coverage.”
If more provinces decide to regulate incidental sales of insurance, Ryu said, they should be prepared to clamp down on coercive selling tactics, such as making the advance of loan funds contingent on the purchase of a particular insurance product. In addition, he said, regulators should consider requiring designated representatives to be fully licensed in the types of insurance offered by restricted licence-holders.
The new rules in New Brunswick — like those in Alberta, Manitoba and Saskatchewan — do not require any specific qualifications for designated representatives. Instead, the FCSC must be satisfied only that the nominated individual is “suitable.”
In a statement to Investment Executive, Canadian Life and Health Insurance Association Inc. spokesperson Zoë Grace stated that the provinces in which incidental insurance sales are regulated have struck an appropriate balance between consumer access and consumer protection.
According to Grace, the new rules have opened up the possibility of insurance coverage for people who would otherwise miss out because a fully licensed agent was unavailable to them for reasons including geography, mobility and affordability.
“We believe these channels are complementary,” Grace said. “It makes sense that these two different types of insurance are distributed through different channels, as it allows more Canadians to access insurance coverage to help manage the uncertainties they face.”
Stewart agrees there is room for an expansion in the number of people covered by creditor’s life insurance products, even if some would be better served by a more traditional term policy that is comprehensively underwritten. In cases in which clients have already purchased creditor products, she said, converting those products to an individual insurance policy over which they have ownership and control is relatively simple.
“My thought is that something is better than nothing, and there are a lot of Canadians out there who don’t have a financial advisor,” Stewart said. “This can be a very positive change, because it helps the community and it builds awareness that insurance is important.”