Stephen Frank has no shortage of items to tackle in his new role as president and CEO of the Canadian Life and Health Insurance Association Inc. (CLHIA), as the life insurance industry grapples with a long list of regulatory reforms.
At the top of Frank’s list, however, is the need for changes to the distribution of life insurance and, in particular, improving oversight of insurance advisors.
“We have really fundamental decisions to make around how we distribute product, how we pay and incent our sales forces, how we disclose that to customers – really big issues around distribution,” Frank says. “We think there are some changes needed, and we would like to see some movement on that.”
In July, Frank, who is 45 years old and resides in Toronto, assumed the role as head of the CLHIA, which represents the vast majority of life and health insurers in Canada. Having been with the CLHIA since 2010, including serving as senior vice president of policy for the association for most of the past year, Frank is well versed on the many regulatory challenges facing the insurance industry.
Some examples include a new capital regime that takes effect at the beginning of 2018; significant looming changes to insurance accounting standards; changes to the regulatory framework surrounding travel insurance and segregated funds; new anti-money laundering requirements; recently adopted legislation that prohibits life insurers from requiring applicants to disclose genetic testing information for underwriting purposes; and growing regulatory focus on the fair treatment of consumers.
“The biggest challenge is that there is just so much going on,” says Frank. “For us to be adding a lot of value to the industry, we need to decide where we really want to focus our efforts. We’re not that large an organization that we can do everything.”
Distribution is one area in which the CLHIA has determined that it has an important role to play in helping the industry develop a co-ordinated approach to some of the concerns that regulators have flagged, Frank says.
Specifically, as part of the focus on the fair treatment of consumers, regulators are zeroing in on aspects of distribution, such as the compensation and incentives that advisors receive and the potential conflicts of interest that can result; the disclosure provided to clients; the steps taken during the sales process to evaluate a client’s needs; and the factors considered when a product recommendation is made.
“The regulatory expectations are changing,” Frank says. “We’re seeing a move toward treating customers fairly being the cornerstone of everything.”
Although insurance carriers are responsible for the oversight of the advisors who sell their products, there are limitations to carriers’ ability to provide direct oversight in the independent distribution channel, because managing general agencies (MGAs) serve as intermediaries between carriers and advisors. As a result, coming up with ways of helping insurers meet their regulatory obligations in this area more easily is a key focus for the CLHIA.
Rather than waiting for the regulators to dictate expectations and then having to scramble to comply, Frank believes the CLHIA and its members – in collaboration with industry players such as MGAs, advisors and other associations – should be the ones to instigate change in the industry.
“This is an area in which I feel that, as an industry, we can either play defence and be reactive or we can think, ‘What is the right thing for our customers and how can we get there ourselves?'” he says. “When you’re proactive, you can plan for [change]; you can reach consensus; you can work with regulators and the industry to do things at a pace that makes sense.”
As part of that approach, the CLHIA has released two position papers in the past two years, highlighting suggestions for strengthening advisor oversight and consumer protection. For example, Promoting a Customer-Focused System, published in 2016, called for a variety of changes related to distribution, disclosure and sales incentives. These included calls to eliminate the practice of insurers providing “all expenses paid” trips to conferences in desirable locations for independent advisors who meet sales targets, in order to avoid the perception of a conflict of interest.
That recommendation prompted industry action almost immediately, with many life insurers changing or cancelling their advisor conferences altogether.
More recently, the CLHIA released a paper entitled Improving Advisor Oversight, in which the association recommends a new regulatory licensing and oversight regime for distribution firms such as MGAs. Advisors can expect to hear more from the CLHIA on the topic of distribution, according to Frank, who adds that the independent distribution channel could look different from the way it does today within five to 10 years.
“I think there will always be an independent channel,” Frank says. “Although there will be an expectation that there’s a bit more oversight and understanding of the entirety of what those individuals are doing.”
Playing a role in shaping policy is something Frank is passionate about. Early in his career, in the late 1990s, he worked at the federal Department of Finance Canada and contributed to the MacKay Task Force on the Future of the Canadian Financial Services Sector. That task force undertook a major federal review of the financial services sector and made several policy recommendations.
“I do enjoy the policy work; the analytical work,” Frank says, “looking out five years and thinking about where we would like to be as a company or an industry, and what do we need to be doing now to make sure we [reach] that place.”
Frank’s career later brought him into the private sector, with a decade-long stint at Bank of Montreal in Toronto in roles involving financial strategy and treasury management. That provided beneficial experience that could be applied in his role at the CLHIA, Frank says, particularly in contemplating potential policy changes and their impact on companies.
“When we get into discussions with regulators, when they may want to change a regulation or a rule, being able to understand really clearly how difficult change can be [is helpful for companies],” he says. “[That way], I understand better where the [CLHIA’s] members are coming from and it helps with those discussions.”
In addition to the abundance of regulatory issues in play, another goal for Frank in his new position at the CLHIA is to work toward improving the reputation of the life insurance industry. He says media attention on rare situations in which insurance claims have been denied tend to overshadow the positive impact that the industry has on Canadian families.
“There’s a story that the industry needs to do a better job of telling, and part of my role is to help get that story out,” Frank says. “I would like the industry to be seen in a more positive light.”
Outside of office hours, Frank enjoys spending time with his wife and their two sons, who are aged six and nine, and staying active through sports such as volleyball, skiing and cycling.
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