I just found this article regarding life insurance in Ontario.

Veil lifted on life insurance agents and brokers

JAMES DAW

As property insurers and their sales agents prepare to strip naked, the sales commissions in the life insurance business are like a man in a tent.

It's obvious the man is in there, but you can't tell from his shadow how big he is, or whether he is menacing or friendly.

Starting this week, new regulations in Ontario will require life agents and brokers to open the tent flap a bit, and expose more about their financial motivations.

It's just by coincidence that the new Regulation 347/04 of the Insurance Act came into force Monday, so soon after New York Attorney General Eliot Spitzer turned the illegal acts of a few brokerage and insurance company employees into a sweeping denunciation of established industry practices. But the timing was impeccable.

New requirements and prohibitions are intended to assure consumers that their agent or broker will have a minimum level of training, and will provide enough information to help judge whether sales recommendations are unduly influenced by self-interest.

Many agents would already be subject to codes of conduct because of their professional standing with ( Advocis - Financial Advisors Association of Canada) or the Financial Planners Standards Council (FPSC), which controls use of the Certified Financial Planner designation.

But not everyone is a CFP or Chartered Life Underwriter. So Ontario is now requiring that everyone who is granted a licence to sell life or accident and sickness insurance must meet certain standards. They must: Disclose in writing the names of all insurers they represent.

Disclose in writing any conflict of interest or potential conflict of interest associated with the transaction or agent's recommendation.

Refrain from using inducements, coercion, undue influence, false, misleading or simply incomplete statements to make a sale.

Refrain from inducing clients to stop payments, remove cash or take a loan on an existing policy in order to sell a new policy where that would not be in the client's best interests.

Grant Swanson, executive director of licensing and market conduct with the Financial Services Commission of Ontario, said the conflict of interest rule will have broad application.

It's not intended to force agents to provide a list of commission scales unless a difference in pay structure could influence, or might be perceived by a third party to have an influence on what recommendation the agent might make.

For example, he said, the agent should disclose if the sale of a particular product would put the agent over a certain sales target that would qualify him or her to win a trip.

A broker should also disclose that he or she puts the bulk of his clients with a particular insurer if an additional sale would increase his or her compensation for that and other policies sold that year.

But in some cases, policies from different insurers may be virtually identical in features and price. It may not matter to the consumer that the product the agent recommends will earn a larger sales commission, said Swanson.

Jim Bullock, a veteran life agent and registrar of the course provider, the Peel Institute of Applied Finance, said agents might run afoul of the regulation if they persuaded a client not to cancel a policy without disclosing that an early cancellation would require the agent to return his or her sales commission.

Swanson said regulators have not discussed the particular scenario described by Bullock, but he said: "Our recommendation has been: If in doubt, disclose."

Agents may still be able to justify a recommendation that will earn larger sales commissions simply because the type of product - such as a whole life or universal life policy - is more suited to a client's needs or desires than a less expensive and remunerative product such as Term-100.

(All three provide permanent insurance, but not all have the same flexibility to omit monthly payments or recover money if the client no longer sees a need for permanent insurance or as much coverage.)

Terry Taylor, chief operating officer of Advocis, said the public should realize that different levels of compensation for different products are not fundamentally wrong.

Compensation levels correspond with the complexity of the product and client's needs. "The more complex the product, the more advice that needs to be attached to it," said Taylor. The agent helps to find the right product and calculate the right amount of coverage.

Consumers have always been free to ask agents about the companies they represent and the type of compensation they receive, said Taylor. His group would have preferred that the province had merely required agents to have a professional designation with a code of ethics that calls for the agent to put the interests of the client first.

But Swanson said the advantage of the regulation is that FSCO Ontario has an effective track record with enforcement, along with the right to levy fines through the courts.

Articles from December 2006
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