Changes affecting firms as of December 13, 2019

On December 13, 2019, amendments to the Act respecting the distribution of financial products and services (Distribution Act) will take effect. The new Regulation respecting damage insurance brokerage will also come into force on this date.

The following is a summary of the key amendments to the Distribution Act:

Act respecting the distribution of financial products and services

  • New criteria which all registrants in damage insurance must meet in order to qualify as damage insurance brokerage firms
  • New obligations for representatives certified as damage insurance brokers
  • Two new titles for firms:
    • Damage insurance brokerage firm; or
    • Damage insurance agency.
  • New disclosure obligations
  • New information entered in the AMF’s public register

Here are the main points of the Regulation respecting damage insurance brokerage

Regulation respecting damage insurance brokerage

  • Two classes of products are covered by the Regulation:
    • Automobile insurance;
    • Home insurance (property and civil liability insurance on the principal residence that the insured owns or rents).
  • Additional disclosures that damage insurance brokers are required to make to their clients:
  • A damage insurance agency must act exclusively through damage insurance agents.
  • A 90-day transition period for firms.

Important dates

December 13, 2019

Coming into force of:

  • The new provisions of the Distribution Act and its regulations;
  • The new Regulation respecting damage insurance brokerage.

December 13, 2019 to March 1, 2020

Qualification period for all damage insurance registrants.

Mid-March 2020

All registrants will receive a notice from the AMF. Please note that the AMFwill not provide information regarding your qualification status before this time, regardless of when your qualification form was submitted.

Information

Need help?

Make an appointment with a member of the AMF team dedicated to damage insurance brokerage firms and their employees. Please provide your business contact information (telephone no. and e-mail address). 

Make an appointment  This link will open in a new window

End of the Information

A dedicated team

The AMF has set up a dedicated team to assist damage insurance registrants in understanding and complying with the new requirements. The members of the team can answer registrants’ questions about the new rules and support them through the qualification process and the transition, if any. The team will remain available for as long as it takes for registrants to adapt their business models to the new rules.

Obligations

Qualification period: December 13, 2019 to March 1, 2020

Any firm, independent representative and independent partnership registered in damage insurance must complete the Qualification in damage insurance form (available as of December 13, 2019) in order to qualify and pursue activities as a damage insurance brokerage firm or a damage insurance agency. Registrants must complete the form in E-Services or mail it to the AMF before March 1, 2020. As soon as registrants submit the qualification form to the AMF, they may take the steps required to use their new title of damage insurance brokerage firm or damage insurance agency.

Qualifying as a damage insurance brokerage firm

A firm must meet the following conditions in order to qualify as a damage insurance brokerage firm:

  1. It must not be an insurer;
  2. Its capital must comply with section 150 of the Distribution Act. This section states that no financial institution, financial group or legal person related to this firm may hold:
    • an interest allowing it to exercise more than 20% of the voting rights attached to the shares issued by the firm; or
    • an interest representing more than 50% of the value of the firm’s equity capital.

In addition, the qualification form must include the name of the financial institution, the financial group or the legal person that is related to the firm and that holds an interest in shares issued by the firm representing more than 20% of the value of the firm’s equity capital.

A firm that offers products in the personal-lines automobile insurance and home insurance classes must also provide:

  • the names of at least three insurers registered with the AMF that do not belong to the same financial group from which it and its brokers are able to obtain quotes in each of these classes;
  • The name of any insurer to which are paid more than 60% of the premiums stipulated in the contracts into which it entered and belonging to a single class.

Firms acting without the intermediary of a natural person (through a digital space) are in compliance with sections 6 and 38 of the Distribution Act.

Obtaining quotes from an insurer

Brokers must ensure the quotes they are able to obtain meet clients’ needs. Firms may do any of the following to make sure their brokers comply with this obligation:

  • Enter into a distribution agreement with an insurer. An insurer may distribute its products without requiring a formal distribution agreement so that risks can be submitted to it by any firm. In this case, firms may consider themselves able to obtain a quote from that insurer, when appropriate for the client’s situation.
  • Enter into an agreement with a banner, which allows firms to obtain quotes from one or more insurers. Firms could also have direct agreements with two insurers and have an agreement with a banner providing access to a third insurer.
  • Enter into an agreement with a wholesaler, which allows firms to obtain quotes from one or more insurers.
  • Enter into an agreement with another firm in order to have access to the insurers with which the other firm has a distribution agreement. Note that the situation referred to here is not one where the firm refers a client to another firm which then takes charge of the client. The firm must be able to offer the client the product itself and keep the client.

Other business models may be considered, provided that insurers allow their products to be distributed in the proposed manner. In all cases, the firms will also have to ensure that the rules governing the protection of their clients’ personal information are followed and the required consent is obtained. The process implemented must be transparent and not create confusion for the client.

Attention! Note that brokers cannot obtain one of the three quotes via an insurer’s on-line tool for consumers.

Qualifying as a damage insurance agency

A firm must meet the following conditions in order to qualify as a damage insurance agency:

  • It must be bound by an exclusive contract with a single damage insurer.
  • It must provide the name of any insurer to which it is bound by an exclusive contract and the personal-lines and commercial-lines insurance products covered by that contract.

How to submit the form (as of December 13, 2019)

If you are registered for E-Services

  1. You can register as a damage insurance brokerage firm or as a damage insurance agency under the “Qualification in damage insurance” tab.
  2. To do so, you must first access E-Services via clicSÉQUR. If you are an independent representative, you must select the access mode “My registration as an independent representative”.
  3. 3. Next, under the “Insurance and Financial Planning” menu, select “Registration” and then “Qualification in damage insurance”.
  4. 4. You will then have access to the qualification form and be able to go through the 4 steps by answering the questions.

If you are not registered for E-Services

  1. Complete the paper version of the Qualification in damage insurance (pdf - 287 KB)This link will open in a new windowUpdated on 12 December 2019 form
  2. Mail in your form and any supporting documents.

Receipt of notice of confirmation or notice of change (mid-March)

The AMF will send notices of confirmation and notices of change to all registrants in mid-March.

  • Receipt of notice of confirmation: As of the date of receipt of this notice, the registrant must comply with the requirements applicable for registration as a damage insurance agency or a damage insurance brokerage firm. The registrant will not receive any other correspondence from the AMF in this regard.
  • Receipt of notice of change: As of the date of receipt of the notice of change, a firm will have 90 days to comply as a damage insurance agency. When that 90-day period expires, the firm will be registered as a damage insurance agency. In addition, the titles of all representatives attached to the firm will be changed automatically from ‘broker’ to ‘agent’ unless they have chosen to be attached to another brokerage firm. During that 90-day period, the representatives attached to the firm will be able to continue to use the title of damage insurance broker

Must be able to obtain quotes from at least three insurers

As of December 13, 2019, brokers who offer an automobile or home (principal residence) insurance product directly to a client who is a natural person must be able to obtain quotes from at least three insurers registered with the AMF that do not belong to the same financial group.

This obligation, set out in section 38 of the Distribution Act (completed by section 1 of the Regulation respecting damage insurance brokerage This link will open in a new window), implies that brokers are able to obtain three quotes. If they are unable to obtain them, they must keep on file the information allowing them to prove that they made every effort to comply with this requirement and must update such information regularly.

For example, a broker who was unable to obtain three quotes for a specific peril from three insurers not belonging to the same financial group must document this fact so that the AMF can understand the situation when it examines the file.

Commercial-lines insurance brokers are exempt from this obligation.

Disclose the name of the insurer to which more than 60% of premiums are paid

A broker who offers personal-lines automobile or home (principal residence) insurance products directly to the public must, before inquiring into the client’s situation in accordance with section 27 of the Distribution Act, disclose to the client the name of the insurer to which more than 60% of personal-lines damage insurance premiums are paid by him as an independent representative or by the firm or the independent partnership on behalf of whom he is acting, as well as the percentage of this volume.

There are several ways to comply with this disclosure obligation. For example, in the AMF’s view, a firm could disclose this information in its telephone greeting.

If brokers communicate with a client otherwise than by phone (in writing, in person, etc.) and, as a result, the client does not hear the disclosure in the telephone greeting, they must ensure that they personally make this disclosure to the client orally or in writing.

Brokers and their firms are responsible for being able to establish that they have fulfilled their disclosure obligations.

A broker who makes this disclosure is exempted from the following obligations:

  1. the obligation, under section 4.8 This link will open in a new window of the Regulation respecting information to be provided to consumers, to disclose the business relationship referred to in the second paragraph of section 4.10 This link will open in a new window of the Regulation; and
  2. the obligation, under section 4.13 This link will open in a new window of the Regulation, to confirm in writing the disclosure referred to in subparagraph 1.

However, the broker is not exempted from disclosing the other business relationships specified in the first paragraph of section 4.10 of the Regulation, such as those arising from loans and other forms of financing. A broker who does not place 60% or more of his volume with a single insurer must make all the disclosures currently required under the Regulation.

Complying with the new obligations

The new provisions relating to damage insurance brokerage came into force on December 13, 2019.

Since that date, damage insurance brokers who offer an automobile or home insurance product covered by the Regulation respecting damage insurance brokerage (the “Regulation”) directly to the public must be able to obtain quotes from at least three insurers that do not belong to the same financial group.

Compliance with the new disclosure obligations in section 83.1 of the Act respecting the distribution of financial products and services (Distribution Act) and section 2 of the Regulation is also required as of that date.

The AMF recognizes that major changes to operations and IT systems may be necessary in order to comply with the new obligations and will show flexibility with firms that have taken steps to implement the required changes.

Example

A brokerage firm that places 72% of its premium volume in personal-lines damage insurance (all product classes combined) with insurer ABC must ensure that its brokers, when they offer automobile or home insurance products, disclose to clients that 72% of its personal-lines damage insurance premiums are placed with insurer ABC. If the brokerage firm has received loans from insurer ABC, its brokers must also disclose that business relationship, as provided for in the first paragraph of section 4.10 of the Regulation respecting information to be provided to consumers.

When brokers issue or renew an insurance policy, they must confirm in writing the disclosures that were made under sections 4.8 and 4.10.

Disclosures on websites and in written communications

Damage insurance agencies and damage insurance brokerage firms must disclose the following information (section 83.1 of the Distribution Act) on their websites and in their written communications with their clients:

Damage insurance agency:

  • The name of any insurer to which it is bound by an exclusive contract and the products covered by that contract.

Damage insurance brokerage firm:

  • The names of the insurers for which it offers products;
  • The name of the financial institution, financial group or legal person related thereto that holds an interest in the shares it issued representing more than 20% of the value of its equity capitalEquity capital generally refers to the funds permanently invested in the business by the shareholders. It is increased or decreased by earnings or losses accumulated from year to year that have not been distributed to the shareholders. Under sections 83.1 and 150 of the Distribution Act, a firm’s equity capital must exclude shares that do not carry the right to vote or the right to receive a share of the firm’s remaining property on liquidation (usually referred to as “preferred” shares). This is a general definition and other characteristics may apply, depending on your situation. Please discuss this matter with your accountant or legal counsel. ; and
  • In personal-lines home insurance and automobile insurance, the name of the insurer to which it pays more than 60% of the premiums that are stipulated in the contracts it enters into and that belong to a single class.

The Distribution Act does not define the concept of “written communications”. Registrants are responsible for complying with their obligations and determining which communications are covered by this disclosure obligation.

The AMF considers this disclosure obligation to cover only material written communications. To determine if a written communication is material, the actual content of the communication must be considered, not the medium used, whether it be paper or electronic. The AMF considers the following communications to be material and therefore subject to the disclosure obligation:

  • any written communication that accompanies an insurance policy, a confirmation of insurance, a change to a policy or a policy renewal;
  • any written solicitation sent to a client or a prospective client.

Conversely, a simple communication to set up an appointment would not be considered a material communication of the firm. Consequently, this exchange between the representative and the client could take place by text messaging or over social networks.

Nothing in the foregoing exempts representatives and firms from complying with their other legal obligations.

For firms that distribute an insurance product through a banner, the percentage to be disclosed is the percentage relating to the insurer with which the firm places 60% or more of its volume in personal-lines insurance, not the total percentage that the firm places through the banner. The firm must contact the banner to find out the percentage the firm has placed with an insurer through that banner.

Written communications sent directly by insurers

Written communications sent directly by insurers, if they are sent on the firm’s behalf or jointly by the insurer and the firm, are considered by the AMF to be “written communications” of the firm that are subject to the requirements of section 83.1 of the Distribution Act.

Even if the insurer is the party that sends the communications, the firm remains responsible for ensuring compliance with its disclosure obligations. It is therefore responsible for requiring that the insurer include the information stipulated in section 83.1 of the Distribution Act in communications sent on behalf of the firm.

Keeping of information on file

A firm must maintain discipline among its representatives and ensure that they act in compliance with the Distribution Act and its regulations.

It must therefore ensure that representatives keep the information allowing them to prove that they made every effort to comply with the provisions of the first paragraph of section 38 of the Distribution Act and must update such information regularly.

Firm offering products or services via the Internet (without the intermediary of a natural person)

A firm that offers an automobile or home insurance product via a digital space directly to a client who is a natural person must also be able to obtain quotes from at least three insurers that do not belong to the same financial group.

This obligation, set out in sections 38 and 86.0.1 of the Distribution Act, implies that brokers are able to obtain three quotes.

If they are unable to obtain them, the firm must keep on file the information allowing it to prove that they made every effort to comply with this requirement. The firm must update such information regularly.

When must registrants start complying with their new obligations?

Brokerage firms that intend to continue in that capacity and have completed the relevant qualification form should immediately take steps to begin complying with the new framework. Firms that previously dealt with brokers and have decided to become agencies can begin the process of complying with the provisions applicable to damage insurance agencies.

The AMF recognizes that major changes to operations and IT systems may be necessary to comply with the new obligations and will show flexibility with firms that have taken steps to implement the required changes. All registrants will therefore have until March 1, 2020 to comply with their new obligations.

Firms that receive a notice of change in registration in mid-March—and the representatives directly affected by the change—will then have 90 days to comply with their new obligations.


Important definitions

Damage insurance brokerage firm

Under section 75 of the Distribution Act, a firm must meet the following conditions in order to be registered as a damage insurance brokerage firm:

  1. It is not an insurer;
  2. Its capital must comply with section 150 of the Distribution Act and no financial institution, financial group or legal person related thereto may hold:
    • an interest allowing it to exercise more than 20% of the voting rights attached to the shares issued by the firm; or
    • an interest representing more than 50% of the value of the firm’s equity capital.
  3. Its representatives are damage insurance brokers who comply with section 6 of the Distribution Act and, where they offer personal-lines automobile insurance and personal-lines home insurance directly to the public, section 38 of the Distribution Act.
  4. Where a firm acts without the intermediary of a natural person (through a digital space), it complies with sections 6 and 38 of the Distribution Act.

A firm that does not meet these conditions may not be registered as a damage insurance brokerage firm. It must be registered as a damage insurance agency and meet all the criteria related to this title.

Damage insurance agency

An agency must meet the following conditions in order to be registered as a damage insurance agency:

  1. The natural persons through which it pursues activities must be damage insurance agents;
  2. It must be bound by an exclusive contract with a single insurer.
Warning

An independent representative or independent partnership may not act as an agency. They must qualify based on the conditions for the title of damage insurance brokerage firm that are applicable to them.

End of the warning

Damage insurance agent

Under section 5 of the Distribution Act, a damage insurance agent is a natural person who acts on behalf of a firm that:

  • is an insurer; or
  • is bound by an exclusive contract with a single damage insurer.

An agent offers damage insurance products directly to the public only.

Warning

A representative cannot simultaneously be an agent and a broker.

End of the warning

Damage insurance broker

Under section 6 of the Distribution Act, a damage insurance broker is an individual who offers a range of damage insurance products from several insurers directly to the public. A broker may also offer damage insurance products from one or more insurers to a firm, an independent representative or an independent partnership.

As stated in section 38 of the Distribution Act, damage insurance brokers who offer insurance products directly to the public must, each time they offer an insurance product belonging to a class determined by regulation of the AMF, i.e., automobile insurance or home insurance (section 1 of the Regulation respecting damage insurance brokerage) to a client who is a natural person, be able to obtain quotes from at least three insurers that do not belong to the same financial group, within the meaning assigned to that expression by section 147 of the Distribution Act.

Damage insurance sector

The damage insurance sector consists of two classes:

  • Personal-lines damage insurance: This class is limited to products pertaining to property and civil liability that are intended to meet the personal, family or household needs of a natural person or an independent worker at his residence or pertaining to residential buildings containing not more than six dwellings.
  • Commercial-lines damage insurance: This class is limited to products pertaining to damage insurance for commercial businesses, including in respect of independent workers.