If advisors say there’s already too much regulation in the financial services industry, Danielle Boulet has news for them: there’s more to come.

The chairwoman of the Canadian Council of Insurance Regulators, which represents the superintendents of insurance across the country, says the low-profile but influential group is focusing on two underregulated businesses in every province and territory: using credit scores to assess applications for insurance and the rising number of managing general agencies.

There are no specific regulatory changes currently in the works regarding the oversight of MGAs or credit-scoring agencies. But in both cases, members of the CCIR have concerns. Plans are underway to develop new guidelines that will set out best practices for each of these lines of business. These guidelines may eventually serve as precursors to new regulation, Boulet says.

“We’ll be looking at [MGAs] soon,” Boulet says, “whether there is a need to regulate — and what form that regulation would take.”

The CCIR is an umbrella group, comprising representatives from each of the provincial and territorial insurance regulators. Its equivalent in the securities world is the Canadian Securities Administrators, and the CCIR has the same fundamental goal as the CSA: to enhance confidence in the industry, primarily through consumer protection. Among the CCIR’s principal activities is the harmonization of regulation across the country. The group also tries to keep track of the differences in regulation among jurisdictions.

“Or as close as we can get it, taking into consideration our different legislative environments,” adds Boulet, a native of Quebec who is on secondment from the Autorité des marchés financiers.

But MGAs and credit-scoring agencies are just the start, when it comes to reviewing the regulatory landscape. Boulet and the CCIR have a full plate of projects to digest in the near future.

Most recently, both insurance and securities regulators have been working on the “point of sale” disclosure document. For more than a decade, these regulators have been trying to come up with a one-page document for consumers that explains as much as possible about the features and risks of a mutual fund or segregated fund.

However, the CCIR did succeed in finalizing the seg fund guidelines in a conference call among it members early last month. The board of the Canadian Life and Health Insurance Association Inc. reviewed and approved these guidelines on Nov. 25. Implementation is still set for January 2011.

Members of the securities industry still aren’t happy with the POS document, with some doubting the need for it at all and many concerned about the associated costs. By the end of the latest round of industry commentary, the CSA had received more than 50 submissions. The insurance industry, on the other hand, has received only four and seems ready to move forward.

Still, slow and steady is the nature of the regulatory beast. Last year, the CCIR released a report on the sales of so-called “incidental sales of insurance” (ISI). This refers to insurance products sold by car companies and, more commonly, banks. The report explained that the application forms are so complex that they cause confusion for consumers, leading to claims being rejected by the insurer.

The CCIR report called for improved application and sales documents for these incidental products, heightened training for and supervision of the sellers, a longer cooling-off period for consumers and more information about the communications that take place between the seller and purchasing consumers. The last item would, it is hoped, clarify issues around consumer complaints and misunderstandings.

Arguably, one of the CCIR’s most important projects is the creation of a complaints-reporting system for the insurance industry. This project has been in the works since the ISI report was released in the autumn of 2008. However, it was only at the end of October 2009 that a CCIR subcommittee was discussing how such a system might be structured.

“Through surveys, we try to identify the issues surrounding various projects,” says Boulet, addressing the slow progress by the CCIR in some areas. “You have to remember the CCIR is what I call ‘an association of the willing.’ We have no authority to force our view on jurisdictions or governments.”

Boulet is particularly excited about the application of credit scoring in selling insurance products. Credit scoring isn’t regulated at all, and regulators wonder how consumer’s interests might be compromised when it comes to using credit scores to approve or decline applications for insurance.

@page_break@“One of the points we make is about the integrity of the data [the credit agencies] use,” says Boulet, who notes the difficulty some consumers have experienced in trying to rectify errors in their files: “Try to make a change in your credit score if there’s a mistake.”

The depth of the potential problem is made clear in another report that the CCIR recently made public concerning a survey on credit-based insurance scoring by the Financial Services Commission of Ontario. The FSCO survey found that out of 35 property insurers in Ontario, 95% see correlations between a consumer’s credit score and his or her propensity to file a claim. These insurers use credit scoring to determine risks, to underwrite and, in a few cases, to price policies.

The next step, says Boulet, is to develop a set of best practices when it comes to the ways that insurers use credit scoring — starting in Quebec: “It’s a fascinating project.”

Also on the “front burner,” she says, is the potential regulation of MGAs. “One of the issues is that, a lot of times, it’s the industry,” Boulet says. “It is the manufacturer that tends to not see a priority in managing these people or their distribution network. That’s one of the issues that we have, and that we see.”

None of this means that the MGA industry needs regulation, she says, but the CCIR is definitely on a fact-finding mission. The CLHIA and the Canadian Association of Independent Life Brokerage Agencies are putting together a report that describes what exactly the MGAs do. Notably, the CCIR has asked for copies of the sorts of contracts that MGAs enter into with the manufacturers.

The goal is to recommend a professional practice standard for MGAs, with input from major industry associations and stakeholders. It is through MGAs that the expanding seg fund industry does its business.

“MGAs are a growing area in distribution. For most of the provinces, it’s not covered in any form,” says Boulet. “The first thing to identify is whether there’s a risk to consumers.” IE