Fundamentals Chapter 15.pptx

 Three Big Things Students have three minutes to write down three of the biggest or most important concepts we have gone over so far in class, in the chat window. Remember the Forgetting Curve!  CHAPTER 15 - REGULATION OF BROKERS THE INSURANCE ACT Regulating insurance...

 Three Big Things Students have three minutes to write down three of the biggest or most important concepts we have gone over so far in class, in the chat window. Remember the Forgetting Curve!  CHAPTER 15 - REGULATION OF BROKERS THE INSURANCE ACT Regulating insurance intermediaries is provincial → addressed by Insurance Act of the province 1. Administration Administration of the Insurance Act ○ Responsibility of the Superintendent of Insurance OR Superintendent of Financial Institutions (BC), OR the Commissioner (Ontario) Provinces: BC, AB, SK, MB, administrative functions for licensing, complaints handling, discipline of brokers is delegated to Insurance Councils ○ Councils also develop by-laws (regulate conduct/trade practices of ALL brokers) ○ Decisions can be appealed to the Superintendent of Insurance Province: ONT: the Registered Insurance Brokers of Ontario Act (1981)  THE INSURANCE ACT 2. Licensing Standards i) Qualifications for Licensing Insurance Act → all parties selling insurance must be licensed ○ All applicants must be sponsored by the brokerage firm OR insurer that employs the applicant OR if self-employed must be sponsored by an insurer they represent To get an INITIAL license Applicant MUST ○ Be of good character/reputation ○ Must pass an approved exam (course of study/passing mark varies among provinces) Initial Course of Study ○ Some provinces this course is the ONLY course required ○ Other provinces have to want a STEP LICENSING SYSTEM where there are various levels of licenses and knowledge increases with each level  THE INSURANCE ACT 2. Licensing Standards STEP LICENSING SYSTEM - EXAMPLE (BC/ONT) Level I ○ Licensees can sell all types of general insurance ○ Sales activities → restricted to BROKERAGE OFFICE ONLY EXCEPTION: Level I licensees can travel to auto dealerships to transact auto insurance ONLY IF brokerage has a Mobile Auto Contract with ICBC ○ Licensees have to be supervised AT ALL TIMES by a Level II or III Level II ○ Licensees can sell all types of general insurance inside/outside brokerage premises NOT ALLOWED to own/manage a brokerage ○ (Subject to) supervision of Level III licensee  THE INSURANCE ACT 2. Licensing Standards STEP LICENSING SYSTEM - EXAMPLE (BC/ONT) Level III ○ Licensees can sell all types of general insured AND have the qualifications to own/manage a brokerage ONTARIO ○ Three levels of licenses ○ Level I - restricted and must be under supervision ○ Level II (1) - unrestricted technical only ○ Level II (2) - Unrestricted management/technical  THE INSURANCE ACT 2. Licensing Standards ii) Class of License Brokers get an All Classes (Other Than Life) license and CANNOT sell other classes of insurance UNLESS THEY ARE LICENSED ○ EXAMPLE: Ontario → must have another license to sell travel insurance iii) License Term License is usually for one year (but not always) ○ Ontario - 1 year ○ BC - continuous with annual filing requirement ○ NS - 3 years ○ SOME PROVINCES licensees have to finish a specific number of hours of continuing education to validate OR renew their license  THE INSURANCE ACT iv) License Jurisdiction Brokers have to be licensed in the province they do business in Insurer cannot insure property in a province UNLESS the policy is countersigned by a broker licensed IN THAT PROVINCE ○ And then must give commission to that broker  THE INSURANCE ACT 2. Licensing Standards v) Basis for Termination of License ALL licensees must maintain a high ethical standard DEFINITION: ETHICS → one’s moral duties/obligations to others Insurance brokers are autonomous enough to exercise sound judgement and skill MINIMAL ETHICAL BEHAVIOUR ○ From The Insurance Act, and license may be revoked IF THE BROKER: a) Is guilty of misrepresentation, fraud, deceit, dishonesty b) Contravenes ANY provision of the Insurance Act or the equivalent Most provinces → licensees are NOT ALLOWED to rebate DEFINITION REBATING ○ Returning a part of the premium on the policy to applicant to induce them to purchase insurance ○ Can also be giving the client something valuable (other than money) REBATING IS ILLEGAL IN MOST PROVINCES  THE INSURANCE ACT 2. Licensing Standards v) Basis for Termination of License MINIMAL ETHICAL BEHAVIOUR ○ From The Insurance Act, and license may be revoked IF THE BROKER: c) Unreasonably fails to pay insurer premiums collected AND kept beyond the term stipulated in the Agency Agreement If brokerage enters into Agency Agreement with insurer, the premiums must be submitted at a specific time If the premiums are not submitted when due, the broker’s license may be terminated d) Places insurance with unlicensed insurers (without following legislation regarding unlicensed insurers)  THE INSURANCE ACT e) Proves to be incompetent/untrustworthy to transact agency business for which license was granted for f) Misuses Trust Funds ○ Brokers hold clients’ premium “in trust” until remitted to insurers ○ Trust fund tampering → misuse of funds can mean inadequate control of finances, deliberate misrepresentation of trust positions OR misappropriation of funds  SETTING STANDARDS OF CONDUCT - OTHER INFLUENCES The Role of Insurance Councils/RIBO have created a Code of Conduct/Code of Ethics that is based on rules and regulations like the federal Privacy Act and complementary provincial legislation AND the Canadian Council of Insurance Regulators (CCIR) 2006 (managing conflicts of interest) CCIR REPORT ○ Intermediaries have to follow three principles 1. Priority of Client’s interest 2. Disclosure of Conflicts OR Potential Conflicts of Interests 3. Product Suitability ONTARIO and provinces with Insurance Councils, have separate by-laws OR regulations that address ethical conduct required of ALL brokers  SETTING STANDARDS OF CONDUCT - OTHER INFLUENCES Broker’s duties must be performed while adhering to these standards: 1. Integrity Examples of conduct NOT MEETING INTEGRITY ○ Conviction of a criminal offence even if not connected to the broker’s work ○ Misappropriating/being dishonest with a customer’s money/other monies held “in trust: ○ Taking advantage of a client’s inexperience, lack of education, sophistication, or their youth 2. Competence Brokers must be competent in their knowledge of insurance and practices and procedures Act within their scope of knowledge  SETTING STANDARDS OF CONDUCT - OTHER INFLUENCES Broker’s duties must be performed while adhering to these standards: 3. Quality of Service Brokers must try to provide conscientious, diligent, effective service Service/customer service at least equal to what an ordinary, prudent, and competent broker would provide EXAMPLES of Conduct THAT DOES NOT MEET THE STANDARD ○ Not returning phone calls, letters, other communications promptly; with insufficient detail ○ Not giving enough notice for non-renewal or renewal ○ Not informing clients to alterations of coverage (changes in policy conditions, premium accounts, any matter/fact that can materially affect the policy or prejudice the client’s interests) ○ Not offering the correct insurance that results in unreasonable gaps in insurance coverage  SETTING STANDARDS OF CONDUCT - OTHER INFLUENCES 4. Advising Clients Clients are dependent on the broker and their advice as an expert Recommendations should be complete, open, and clear The client should be fully informed and all facts and assumptions that were taken into account when making the recommendations should be included with as much detail as possible If a broker receives an incentive or bonus for placing business with an insurer, this has to be disclosed to the client TIED SELLING ○ Brokers are not to assist in or engage in tied selling EXAMPLE: Will only give the auto insurance policy IF the client buys another insurance making the issuance of an auto insurance policy conditional on buying another insurance police  SETTING STANDARDS OF CONDUCT - OTHER INFLUENCES CONDUCT NOT MEETING THIS STANDARD ○ Giving bold/sweeping general assurances that everything is covered when this is not true ○ After being terminated by the insurer, misleading clients about true reason for re-marking coverages on expiry ESPECIALLY when it results in a material difference in premium amount ○ Not advising clients of a warranty on a policy WITHOUT informing them that THIS IS A CONDITION of coverage being provided  SETTING STANDARDS OF CONDUCT - OTHER INFLUENCES 5. Confidentiality In order for brokers to have a good relationship with their clients, brokers must have full and unreserved communication with them Clients must feel that the information disclosed to the broker will be confidential and will only be shared for the purposes that it was given in the first place (example: for negotiating coverage) Duty of confidentiality continues even if the broker has stopped representing the client  SETTING STANDARDS OF CONDUCT - OTHER INFLUENCES 6. Fee Disclosure Brokers WILL NOT charge a fee on an individual policy of insured OVER the premium charged by the insurer UNLESS fee is clearly indicated in writing to the insured ○ Explanation must describe the fee amount AND why it is being charged Sometimes traditional remuneration by commission from insurer doesn’t provide a fair return to broker for services ○ Broker has to always justify the fee ○ If fee can’t be justified, then it is “unconscionable”  SETTING STANDARDS OF CONDUCT - OTHER INFLUENCES 7. Encouraging Public Respect Brokers are insurance intermediaries Brokers can affect how the public perceives the insurance industry ○ Must make sure not to shake or destroy public confidence in the insurance industry AND the position of the broker as a professional independent intermediary 8. Maintaining Integrity of Profession If it is likely that someone will suffer serious damage due to the breach of insurance regulations, brokers are obliged to report the matter to the authorities ○ Evidence of minor breaches may be in fact bigger issues Brokers shouldn’t communicate in an abusive or offensive way (must be professional)  The Role of Professional Associations Most brokers/brokerages are a part of their provincial brokers association The associations are always trying to enhance the professional image of their members Brokers may be following the code of conduct established by the government, but it may not fulfill the requirements of their own provincial brokers association Mostly, associations have a code of conduct that is like a personal pledge to deal fairly and professionally with clients, insurers, fellow brokers  Recall and Write Students have three minutes to summarize this chapter in 3 sentences or write a question about it, in the chat window. Remember the Forgetting Curve!