FSRA stands pat on plan to limit life insurance incentives

Following stakeholder comments, Ontario's financial services regulator has preserved the intent of rule against unfair practices

FSRA stands pat on plan to limit life insurance incentives

Continuing its work to strengthen consumer protection in the insurance space, the Financial Services Regulatory Authority of Ontario (FSRA) is standing its ground on proposals to curb unfair or deceptive acts or practices (UDAP) in life insurance.

In an update to proposals that it issued in December, FSRA made reference to stakeholder comments on rebating and incentives in the life and health insurance sector, including some recommendations for incentives to be prohibited for life insurance companies, agents, and group insurance products.

“Stakeholders in the life and health insurance sector raised concerns about unsuitable sales, unfair sales practices, rate instability, creating an unlevel playing field and taxation issues,” FSRA said.

On its website, the regulator outlined concerns raised by several stakeholders, including the possibility that customers will be encouraged to buy products based on price rather than long-term suitability. Some suggested incentives could result in predatory pricing or unfair sales practices, and encourage a fixation on initial sales and competition-based price discounts instead of financial planning and quality service.

Rebates, some added, would reduce transparency and fairness to consumers. Aside from the possibility that the connection between rebates and premiums may be unclear, some consumers may be offered different rebates than others. Some also noted how certain compensation structures could lead to an unlevel playing field between insurers and intermediaries.

A number of stakeholders recommended that incentives be disallowed for life insurance companies and agents, but permitted for group insurance products.

“One stakeholder recommended that any changes to incentives in life and health insurance products be considered carefully and with further discussion with stakeholders, and separately from the broader UDAP transformation project,” FSRA said.

Following a suggestion from the life and health insurance sector, the regulator said it will continue to engage with the industry to address some concerns raised by stakeholders, citing “unique challenges in providing incentives to consumers without leading to unintended consumer harm.”

However, FSRA said the proposed rule “will preserve the substantive intent of the Regulation as it applies to incentives.” Specifically, it said an incentive or rebate will be considered a UDAP if it is offered as an inducement on a sale of a product that provides life or accident and sickness coverage.