The goal to modernize the British Columbia Financial Services Authority’s (BCFSA) approach to market conduct supervision and oversight includes the requirement for insurers operating in British Columbia (BC) to adopt and follow a Code of Market Conduct established by the BCFSA.
On July 10, 2023, the BCFSA released a regulatory statement establishing the Insurer Code of Market Conduct (Code) that all insurers authorized to conduct business in BC must adopt and ensure compliance effective April 1, 2024. This requirement applies to all BC incorporated insurance companies, extra provincial insurance corporations, societies deemed under the Financial Institutions Act, and mutual fire insurance companies, but excludes reinsurers, reciprocal exchanges and captive insurance companies. Failure to comply with the adoption of the Code by the effective date may result in enforcement action by the BCFSA.
The objective of the Code is to ensure consistency among insurers in the treatment of customers and to protect consumers. The Code is principles-based, allowing insurers to exercise discretion in determining the strategies, policies, and processes for achieving compliance, based on the nature, size, and complexity of their respective businesses. The Code is based on the principles from the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) guidance, Conduct of Insurance Business and Fair Treatment of Customers.
Fair Treatment of Customers (FTC) principles
Under the Conduct of Insurance Business and Fair Treatment of Customers, the CCIR and CISRO describe the “fair treatment of customers” to include concepts surrounding ethical behaviour, acting in good faith and the prohibition of abusive practices. The desired outcomes resulting from the fair treatment of customers include the following:
- Developing, marketing and selling products in a way that puts customers’ interests ahead of their own;
- Providing customers with accurate, clear, not misleading and sufficient information before, during and after the point of sale, which will allow them to make informed decisions;
- Minimizing the risk of sales which are not appropriate to the customers’ needs;
- Ensuring that any advice given is relevant;
- Dealing with customer claims, complaints and disputes in a fair and timely manner; and
- Protecting the privacy of customer information.
The following twelve principles set out in the Code are intended to guide the conduct of insurers and intermediaries when dealing with customers:
- Governance and Business Culture
FTC is expected to be a core component of the governance and business culture of insurers.
The responsibility for the fair treatment of customers is primarily at the board or senior management level. Senior management is generally accountable for designing, approving, implementing and monitoring adherence to company policies and procedures.
2. Conflict of interest
Any potential or actual conflicts of interest are avoided or properly managed and do not affect the fair treatment of customers.
Considering that insurance intermediaries interact with both customers and insurers, they may be more likely to encounter potential or actual conflicts of interests. Potential conflicts of interest may arise from compensation structures, performance targets or performance management criteria, benefits to an insurer or intermediary that incentivize taking a particular course of action with a customer, among other things. Insurers and intermediaries are ultimately expected to place the customer’s interests ahead of their own.
Functions related to the conduct of insurance business outsourced to service providers should not hinder the quality of services or jeopardize the insurer’s ability to achieve the fair treatment of customers.
Insurers that outsource or delegate services to third-party providers must ensure that such providers comply with the laws, regulations and guidance applicable to the insurer.
4. Design of insurance products
The design of a new insurance product or significant adaptations made to an existing product should take into account the interests of the target consumers’ group.
Insurers are expected to develop products that include the use of adequate information to assess the needs of different customers and provide relevant information and training to those who distribute the insurers’ products, among others.
5. Distribution strategies
Distribution strategies should be tailored to the product, consider the interests of the targeted consumer groups, and result in consistent consumer protections independently of the distribution model chosen.
Insurers are ultimately accountable for the distribution and oversight of their products regardless of their chosen distribution model.
6. Disclosure to customer
Customers should be given appropriate information to make an informed decision before entering into a contract.
Insurers and intermediaries must ensure that customers are sufficiently informed about a product, before and at the point of sale, to enable them to make an informed decision about the product. The information provided should allow customers to understand the features and benefits of the product they are considering and help them to understand how such products meet their needs.
7. Product promotion
Product promotional material should be accurate, clear, not misleading and consistent with the result reasonably expected to be achieved by the customer of the product.
Insurers should ensure that any promotional material regarding its products is reviewed by independent functions prior to being circulated to the public.
When a provision of advice is required by law before concluding the contract, customers should receive the relevant advice, considering the customer’s disclosed circumstances.
Before providing advice, appropriate information should be sought from the customers to assess their objectives and needs.
9. Disclosure to policyholders
Policyholders are provided with information which allows them to make informed decisions throughout the lifetime of their contracts.
Disclosure should include, among other things, evidence of coverage, changes in policy terms and conditions or amendments to the legislation that are applicable to the policy, any changes to the status of the insurer, or the acquisition by another entity resulting in organizational changes as far as the policyholder is concerned.
10. Claims handling and settlement
Claims are examined diligently and fairly settled, using a simple and accessible procedure.
The claims examination and settlement processes are key indicators for assessing an insurer’s performance regarding the fair treatment of its customers.
11. Complaints handling and dispute resolution
Complaints are examined diligently and fairly settled, using a simple and accessible procedure.
Insurers are expected to establish policies and procedures to manage complaints in a fair manner, respond to complaints in a timely fashion, analyze the complaints received to identify trends and recurring risks, and to provide clear, transparent information about the independent dispute resolution processes.
12. Protection of personal information
Policies and procedures adopted by insurers for the protection of confidentiality of personal information ensure compliance with legislation relating to privacy protection and reflect best practices in this area.
Theft, loss or inappropriate use of personal information obtained from customers represents a risk to customers and a threat to the insurer’s reputation. Insurers are expected to adhere to applicable privacy legislation in Canada.
While the new regulatory statement does not establish any prescriptive steps for insurers to take, it provides a principles-based foundation that guides insurers with respect to continued industry compliance that aligns with the national standard. Insurers should be alert for any further releases from the regulator that address market conduct issues once the Code has been formally adopted by insurers.
Dentons Canada’s Insurance Regulation team interacts with the regulators who oversee the insurance industry to help you anticipate the positions they will take and the issues that are forthcoming. For more information, please contact the authors, Derek Levinsky and Taschina Ashmeade, or a member of the Corporate and regulatory Insurance groups at Dentons.