New insurance customer fair treatment standard meant to clarify duplication and inconsistency

Ontario’s adoption of a new standard on the fair treatment of insurance customers will clarify duplication and inconsistency between provincial and federal guidance, and outside counsel will be valuable to in-house and compliance teams in advising on how the standard is being applied across the industry, says Stuart Carruthers, partner at Stikeman Elliott LLP.

On Jan. 1, the Financial Services Regulatory Authority of Ontario adopted a new “fair treatment of customers approach” for insurers, and others regulated under the province’s Insurance Act. The guidance applies to the conduct of insurance companies, brokers, agents and claims adjusters, which are all regulated at the provincial level, says Carruthers. He predicts clients will sharpen their focus on compliance and fair treatment of customers, both online and in direct distribution channels. The insurance industry’s in-house lawyers and compliance staff will also benefit from more assistance from outside counsel due to the latter’s familiarity with a variety of approaches to the guidance, he says.

“Obviously, outside counsel have the benefit of working with lots of different clients,” says Carruthers, a member of Stikeman’s corporate group with a practice focussed on insurance and reinsurance sector work. “Seeing across the industry or having a broader perspective across different types of clients – that sort of industry perspective across the horizon can be a benefit that outside counsel can bring to clients. They obviously know their own businesses exceptionally well, but sometimes outside counsel can help with that broader perspective.”

“And I think you'll see that happening both in the life insurance, life and accident and sickness-insurance side of the business, as well as the property and casualty insurance side.”

The new approach is intended to harmonize the province’s standards with the federally recognized guidance issued in 2018 by the Canadian Council of Insurance Regulators and the Canadian Insurance Services Regulatory Organization.

In the wake of the 2008 financial crisis, insurance-sector regulators were primarily concerned with the financial soundness and solvency of insurance companies, says Carruthers. That focus has shifted in the last decade to how fairly these companies and other insurance sector participants treat customers, he says.

“Regulators around the world have been focusing more on fair treatment of customers… treating customers fairly throughout the lifecycle of an insurance product. So that's from the time it's designed and priced, to how it's sold, to how questions are answered about it, and then eventually how any claims are handled,” says Carruthers.

In the last few years, provincial regulators have produced administrative guidance to set out their best practice expectations, he says. In 2018, the provincial regulators assembled to develop a nation-wide guidance. Ontario was among the provinces that continued to use their own. Ontario’s applied to the insurance sector, as well as other financial services sectors, including mortgage broking, loan and trust companies and credit unions, says Carruthers.

The provincial and national standards led to duplication and inconsistency and confusion among market participants, who asked FSRA to solve the issue, he says. While the old provincial guidance still applies outside the insurance sector, the new guidance adopts the national standard, says Carruthers.

“For most market participants, I think it is probably not a huge change, because they're already aware of the Federal guidance,” he says. “… I think it helps clarify, and I think it's part of a larger trend, that the regulators and market participants are focusing more on market conduct and treating customers fairly.”

Ontario’s FSRA has also recently initiated a consultation on its proposed rule on unfair or deceptive acts or practices. The 90-day consultation ends March 18. The rule will replace O Reg 7/00 in the Insurance Act, which is “widely regarded” to be outdated, said an article written by Carruthers and Stikeman colleague Andrew Cunningham.