Commercial Practices in Damage InsuranceLarge majority of brokers not independent

Montréal – A large majority of the Québec brokerage network is not independent of insurers, and brokers concentrate their business on one or two principal insurers. This is the main finding of an analysis of commercial practices in damage insurance conducted by the Autorité des marchés financiers (AMF). At a presentation of the findings, AMF President and CEO Jean St-Gelais announced that a public consultation would be held on new regulatory measures.

“Our analysis revealed a high concentration of brokerage business and highlighted certain distribution practices that are not in the best interests of consumers,” noted Mr. St-Gelais.

The President and CEO said the AMF considers it essential that the ethical standards, trust and credibility of insurance practitioners be of the highest calibre so that consumers can feel secure when seeking damage insurance to protect their assets. This is one of the fundamental aspects of the AMF’s mission.

In October 2004, New York State Attorney General uncovered unacceptable insurance practices in the U.S. The impact of his investigations spread to Canada. Following his revelations, the AMF decided to clarify the situation in Québec. In November 2004, it therefore conducted extensive off-site inspections by sending questionnaires to insurers for the purpose of assessing commercial practices as part of a countrywide data collection carried out by the Canadian Council of Insurance Regulators (CCIR).

Based on an analysis of all questionnaires, the AMF’s findings raised serious questions about the relationship between brokerage firms and insurers.

The concentration of business volume by brokers is fostered by various commercial practices with insurers (loans, ownership ties, block transfers of business, contingent commissions). Are the close ties and business relationships that generally exist between them in the best interests of consumers who purchase damage insurance products?

The AMF will soon undertake a public consultation process regarding the regulatory measures it intends to put forward. Three avenues are being considered for guiding the development of these regulatory measures:

  1. Regulate with a view to banning certain practices in the insurance industry.
  2. Impose the disclosure of relevant information to consumers.
  3. Introduce the concept of “independent broker” for firms.

The AMF is determined to ensure that the new regulatory measures are simple as well as easy to apply and verify. Furthermore, in order to ensure the protection of consumers, the measures will have to be reviewed regularly, given the ever changing nature of commercial practices in the insurance industry.

Further to its inspections, the AMF launched three major investigations in the insurance industry. Over 70 businesses were targeted – insurers, related companies and firms. The investigations focus primarily on transparency and the disclosure to consumers of business ties, as well as with the appearance of conflicts of interest. They specifically relate to ownership ties between insurers and brokers, whether directly or indirectly through other corporations. The investigations also deal with the effect of commercial practices in the insurance industry on the advisory relationship between representatives and their clients.

Mr. St-Gelais stressed the importance of consumer protection. A well-informed consumer is able to make sound choices. The AMF will be taking concrete measures to ensure that consumers are adequately informed of the matter.

Details of the public consultation will be published in the official bulletin of the AMF on its website.

The Autorité des marchés financiers (AMF) is the regulatory and oversight body for Québec's financial sector.

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