On July 24, 2024, the British Columbia Financial Services Authority (BCFSA) released a report (the Report) titled Insurer Oversight of Functions Delegated to Intermediaries in British Columbia in connection with a thematic review (the Review) by BCFSA of selected insurers’ oversight of insurance intermediaries in British Columbia distributing supplemental insurance products[1] through automobile dealerships. The Review was conducted in response to an increasing number of enquiries and complaints received by BCFSA related to the distribution of such insurance products.
The Report contains information relevant to all insurers authorized to conduct business in British Columbia (and not only those dealing in supplemental insurance products distributed through automobile dealerships). The Review occurred mainly between 2020 and 2022 and involved a sample of insurers active in the supplemental insurance market.
The Review focused on matters related to insurers’ (i) compliance with legislation, (ii) outsourcing arrangements, (iii) public facing materials, and (iv) training. BCFSA identified insufficient or absent controls regarding each of the foregoing matters that were subject to the Review.
This article provides a summary of the BCFSA’s key observations from the Review, along with certain associated recommendations proposed in the Report.
- BCFSA key observations from the Review
The Report includes numerous observations from the Review, including:
- Compliance with legislation
BCFSA found that insurers’ control environments were not robust enough to manage the risk of non-compliance with legislative requirements. The Report flags insurers’ lack of comprehensive and robust approach to governance, risk management and regulatory compliance. For example, some insurers underwrote vehicle warranty insurance when not authorized to do so and certain insurers did not consistently disclose their identity in insurance products’ marketing materials.
- Outsourcing arrangements
The Review found insurers lacking formal outsourcing policies and procedures, as well as formal, comprehensive due diligence and risk assessment processes for assessing new outsourcing opportunities. BCFSA also found that insurers’ written agreements dealing with outsourcing arrangements lacked clear, comprehensive and enforceable roles and responsibilities. In addition, certain insurers’ oversight controls over outsourcing arrangements did not provide assurance that the applicable insurance intermediary understood and fulfilled the responsibilities delegated to them by the insurer.
- Public facing material
BCFSA highlighted that the delegation to insurance intermediaries of the design and distribution of certain public facing materials did not have proper involvement and oversight by the applicable insurer. This included certain marketing materials not promoting insurance in a clear, fair and non-misleading manner. For example, often the insurance policy provided to the insured at the point-of-sale was the only source of information to the prospective insured on the insurance product’s key features (including conditions, exclusions, restrictions and fees).
- Training responsibilities delegated to intermediaries
The Review found a lack of appropriate controls for insurers to ensure intermediaries understood and fulfilled training-related responsibilities delegated to them. In addition, BCFSA noted that insurance intermediaries’ training programs varied greatly and contained weaknesses that impaired the fair treatment of customers (FTC). The Report notes that none of the insurers examined by BCFSA monitored or evaluated the quality and effectiveness of insurance intermediaries’ training of distributors (where the responsibility for such training programs was delegated to intermediaries by the insurer). Insurers also did not establish reporting requirements to confirm that insurance intermediaries provided the delegated training and that such training was completed prior to distributors executing their respective responsibilities.
- Complaints handling delegated to intermediaries
The Report noted insurers did not have appropriate oversight over complaint handling processes delegated to insurance intermediaries. This includes insurers lacking controls to ensure complaints-handling policies and procedures were easily accessible to customers and that insurance intermediaries handled customer complaints using a simple and accessible procedure. For instance, insurers’ outsourcing agreements with intermediaries did not clearly define complaints-handling roles and responsibilities (including service standards and complaint escalation expectations).
- Summary of BCFSA recommendations for insurers
The Report includes recommendations from BCFSA which addresses each of the above-noted five areas of concern. We have included a summary of such recommendations below.
| Area of Concern: | Recommendation: |
| Compliance with legislation | Establish appropriate controls to ensure compliance with legislative requirements set out in the Financial Institutions Act (British Columbia) and applicable regulations.Strengthen control environments, including entity-level controls to ensure robust controls over any outsourcing arrangements in British Columbia and consideration given to the principles of FTC. |
| Outsourcing arrangements | Establish comprehensive outsourcing strategies, policies and procedures and include robust due diligence processes and a formal process to review and update established outsourcing policies and procedures. Maintain comprehensive and enforceable written agreements with each insurance intermediary that (i) includes clear delegations of authority and applicable limits, (ii) clearly defines roles and responsibilities of each party involved, (iii) states how performance is measured, and (iv) includes the frequency of reports and information that the insurer expects to receive from the intermediary. |
| Public facing material | Customers should receive sufficient and appropriate information about the applicable insurance products to make an informed decision prior to purchasing the policy.Establish formal review processes of public facing materials so that insurers can monitor that such materials are comprehensive, clear, compliant with applicable legislation and aligned with FTC principles. |
| Training responsibilities delegated to intermediaries | Where training authority is delegated to insurance intermediaries, ensure training program roles and responsibilities are formally defined and communicated to the intermediaries.Proactively monitor insurance intermediaries assigned the responsibility to train distributors and obtain reasonable assurances that those distributing insurers’ products are properly trained and sufficiently knowledgeable (including about the products and FTC principles). |
| Complaints handling delegated to intermediaries | Include formal roles and responsibilities for complaints handling and dispute resolution in outsourcing agreements.Establish formal standards for complaints handling and ensure they are communicated to insurance intermediaries, where applicable. This should result in a consistent approach to claims handling regardless of the party handling the complaint. |
- Implications for insurers conducting business in British Columbia
The Report highlights that insurers did not consistently establish effective controls over insurance intermediaries to prevent improper sales of supplemental insurance products distributed through automobile dealerships in British Columbia. Although insurers may delegate certain aspects of the distribution and administration of an insurance product to intermediaries, BCFSA noted that insurers are ultimately responsible for the fair treatment of customers throughout the life-cycle of an insurance product.
BCFSA expects that the Report will serve as a tool for insurers to review, assess and strengthen (where necessary) their own regulatory controls when working with insurance intermediaries. Insurers should consider reviewing and revising (where necessary) their written policies dealing with the areas of concern highlighted by BCFSA in the Report. In addition, insurers should consider whether the terms of any contracts with insurance intermediaries could benefit from updates following the observations and recommendations in the Report. Where an insurer is regulated by the Office of the Superintendent of Financial Institutions (Canada) (OSFI), any review of an insurer’s commercial agreements should also consider compliance with OSFI Guideline B-10 (Third-Party Risk Management Guideline).
We also recommend that insurers read the observations and recommendations included in the Report alongside the June 2024 report issued by the Canadian Council of Insurance Regulators regarding governance and business culture in terms of the fair treatment of customers. We previously published an article discussing such report in further detail and a copy of such article may be accessed here.
Dentons Canada’s corporate and regulatory Insurance team is available to assist with reviewing insurers’ and intermediaries’ policies, procedures and written agreements to identify and appropriately remedy potential gaps in insurance regulatory compliance. If you have any questions or for more information on this topic, please contact the authors, Laurie LaPalme or Jesse Collins-Swartz.
[1] BCFSA describes “supplemental insurance products” as optional insurance products that include mechanical breakdown protection coverage (i.e., vehicle warranties); vehicle replacement coverage, anti-theft coverage, various appearance protection coverages, and excess replacement benefit/deducible reimbursement benefit insurance coverage.
