Chapter 12 - Regulation of Auto Insurance in Ontario; Consumer Protection Flashcards
Explain the regulatory structure.
Purposes and Organization
1) FSCO was created and regulates:
- insurance
- pension plans
- loan and trust companies
- credit unions
- caisses populaires
- mortgage brokers
- co-operatives
2) the structure of FSCO comprises 3 levels:
- the commission or board the Financial Services Tribunal
- Superintendent of Financial Services and staff
3) the commission or board has 5 members:
a) the chair
b) 2 vice-chairs
c) director of arbitrations
d) superintendent of financial services
4) the director of arb is responsible for auto insurance dispute resolution system
5) the financial services tribunal is an independent body that hears appeals of regulatory decisions and reviews proposed orders of the superintendent
6) the superintendent of financial services is responsible for administering and enforcing the act
What does the consumer protection legislation include?
The insurance act include provisions to protect consumers
- the act prescribes the info to be given to applicants and insureds, and this info is part of the application which is incorporated into the policy
A broker shall provide, on the request of an applicant for insurance:
- the names of all insurers with whom the broker has an agency contract relating to auto insurance
- and all info obtained by the broker relating to quotations on auto insurance for applicants
Explain unfair or deceptive acts and practices under consumer protection legislation.
The superintendent/ person designated may at any reasonable tie examine the books, securities, documents, and things related to the business of an insurer, agent, or adjuster.
1) persons who are licensed under the act, officers/agents of an insurer, and the chief agent of an insurer that has ts head office outside of Ont shall on request, furnish the super/person designated with full info relating to:
a) any contract of insurance issued by insurer
b) any settlement or adjustment under a contract of insurance
c) any activities related to the business of insurance
2) an insured person shall, on request, furnish the super/person designated with full info relating to any contract of insurance issued to the insured person or to any settlement or adjustment affecting the insured person under a contract of insurance
3) brokers are regulated under the Registered Insurance Brokers Act and its regulations which prescribe proper conduct and practices to protect consumers and provide for penalties when they are contravened
- RIBO must report annually to the super of financial services and provide any info requested
- it can be seen that the super has wide powers to investigate and to call for info
What are the prohibited actions under the consumer protection legislation - unfair/deceptive acts?
For the purposes of the definition of unfair/deceptive acts and practices in the business of insurance, the following actions are included:
1) the commission of any act prohibited under the act or the regulations
2) any unfair discrimination between individuals of the same class and of the same expectation of life, in the amt or payment or return of premiums
- or rates charged for contracts of life insurance or annuity contracts, or in the dividends or other benefit payable on such contracts, or in the terms and conditions of such contracts
3) any unfair discrimination in an rate or schedule of rates between risks in Ontario of essentially the same physical hazards in the same territorial classification
4) any illustration, circular, memorandum, or statement that misrepresents, or by omission is so incomplete that it misrepresents the terms, benefits, or advantages of any policy or contract of insurance issued or to be issued
5) any false or misleading statement as to the terms, benefits, or advantages of any contract or policy of insurance issued or to be issued
6) any incomplete comparison of any policy or contract of insurance with that of any other insurer for the purpose of inducing or intending to induce an insured to lapse, forfeit, or surrender a policy or contract
7) any payment, allowance, or gift, or any offer to pay, allow, or give, directly/indirectly, any money or thing of value as inducement to any prospective insured to insure
8) any charge by a person for a premium allowance or fee other than as stipulated in a contract of insurance upon which sales commission is payable to such person
9) any conduct resulting in unreasonable delay or resistance to the fair adjustment and settlement of claims
10) making the issuance or variation of a policy of auto insurance conditional upon the purchase by the insured of another insurance policy
11) when rating a person/vehicle as an insurance risk for the purpose of determining the premium payable for a policy of auto ins, misclassifying the person/vehicle under the risk classification system used by the insurer or that the insurer is required by law to use
12) the use of a document in place of a form approved for use by the super, unless none of the deviations in the document from the approved form affects the substance or is calculated to mislead
13) any examination or purported examination under oath that does not comply with the requirements under the act or regulation
What does the legislation also identify as unfair or deceptive practices?
Legislation also identifies as unfair or deceptive any practice that:
1) is used to attempt to obtain a different premium for an insurance policy than the premium set out on the policy
2) is used to refund or discount all or part of the premium in any form to the person applying for insurance
3) uses credit info for the purposes of:
a) processing an application for auto insurance
b) responding to a request for auto insurance
c) renewal of any auto policy
- note: the insurer must provide lowest rate it makes available taking into consideration all of the circumstances related to the app
- insurer must provide lowest rate available from any of those affilated insurers
What are the remedies under the act for unfair or deceptive acts or practices?
If in the opinion of the super, a person is committing any act or pursuing any course of conduct that is an unfair or deceptive act/practice, or might reasonably be expected to result in a state of affairs that would constitute an unfair/deceptive act/practice, section 440 of the act stipulates the sup give notice to the person of super’s intention to order to person to:
1) cease or refrain from doing any act or pursuing any course of conduct identified by the super
2) cease engaging in the business of insurance or any aspect of the business of insurance by the super
3) perform such acts as, in the opinion of the super, are necessary to remedy the situation
- note: a person has limited time to request a hearing, by written notice to the super
- person is defined to include individuals, associations, and corporate entities
What is classified as broker misconduct under RIBO?
1) the use of methods of solicitation and advertising that are not compatible with the code of conduct including:
- any illustration, circular, or memorandum that misrepresents, or by omission is so incomplete that is misrepresents the terms, benefits, advantages of any policy or contract of insurance issued or to be issued
- making of any false or misleading statement, as to the terms, benefits, advantages of any contract or policy of insurance issued or to be issued
2) the use of any incomplete comparison of any policy/contract of insurance with that of any other insurer for the purpose of inducing, or intending to induce, an insured to lapse, forfeit, or surrender a policy or contract
3) the use of any payment, allowance, or gift, or any offer to pay, allow, or give, directly/indirectly, any money or thing of value as inducement to any prospective insured to insure
4) directly or indirectly making or attempting to make an agreement as to the premium paid for a policy other than as set forth in the policy, or paying, allowing, or giving, or offering/agreeing to pay, allow, give a rebate of whole or part of premium stipulated by policy, or any other consideration/thing of value intended to be in the nature of a rebate premium to any person insured or applying for insurance
5) coercing or proposing, directly/indirectly, to coerce a prospective buyer of insurance through the influence of a professional/business relationship or otherwise to give a preference that would not otherwise be given on the effecting of an insurance contract or coercing, inducing, or exercising undue influence in order to control, direct, or secure insurance business
6) holding oneself out or advertising by means of ads cards, circualars, letterheads, signs, other methods, or carrying business in any other manner than the name in which the individual,, corp, partnership of which the individual is the designated rep is registered
7) the use of any practice or conduct that results in unreasonable delay or resistance to the fair adjustment of claims
8) failure to carry on business in a manner consistent with the code of conduct
9) the use or payment of any referral fees/finders fees or any person who is not a registered insurance broker, or who is not registered/licensed under the laws of any jurisdiction to act as an intermediary for insurance, other than life insurance
What are the other RIBO consumer protection provisions?
1) sections 16/17 - provisions relating to trust funds
2) section 20
- errors and omissions insurance with extended coverage for loss resulting from fraudulent acts or some other form of approved financial guarantee
- and fidelity insurance against losses arising from dishonesty of employees, a proprietor, or partners, directors, officers, and shareholders
3) section 22
- states that penalties that may be levied against a member for misconduct
- all of these measures are designed to protect the consumer
What does the cancellation, refusal to renew section under consumer protection legislation contain?
Section 238 of the insurance act gives the super the authority to:
i) establish requirements that must be met before an insurer declines to issue, terminates, or refuses to renew a contact of auto insurance
ii) prescribe grounds for which an insurer cannot decline to issue, terminate, or refuse to renew a contract of auto insurance
1) every insurer must file with FSCO, a list of grounds for which the insurer declines to issue, terminate, or refuses to renew an an auto insurance contract
2) the super may require insurers, agents, and brokers to provide such info, material, and evidence as the super considers necessary to determine the manner in which any grounds is applied by the insurer
3) an insurer shall not decline to issue, terminate or refuse to renew a contract except on a ground set out in the list filed with Financial Services Commission
4) the super may order, at any time, a hearing with respect to any ground set out in the list filed with FSC if the super is of the opinion that the ground or manner in which it is appied:
a) is subjective
b) is arbitrary
c) bears little or no relationship to the riskto be borne by the insurer in respect of an insured
d) is contrary to public policy
5) following a hearing with respect to a ground, the super may prohibit an insurer from:
a) declining to issue, terminating, refusing to renew any contract on that ground
b) applying that ground, in the manner specified by the super, to decline to issue, terminate, or refuse to renew any contract
- note: there are very severe financial penalties for ind/companies that do not comply with these consumer protection regs
What are the non-renewal procedures under the consumer protection legislation?
- a policy cannot be simply lapsed
- proper notice must be given to an insured or the policy must be placed with another insurer
SECTION 236
1) if an insurer does not intend to renew a contract or if an insurer proposes to renew a contract on varied terms, the insurer shall:
a) give named insured not less than 30 days notice in writing of insurers intention or proposal
b) give broker, if any, through whom the contract was placed 45 days notice in writing of the insurers intention or proposal
2) subsection 4
- a broker to whom an insurer has given notice under clause 1B, shall give the named insured under the contract not less than 30 days notice in writing of insurers intention/proposal
3) notices given under subsection 1 and 2 shall set out the reasons for the insurers intentions/proposal
4) where, before a broker is required to have given notice under subection 2, the broker places with another insurer a replacement contract containing similar terms as the expiring contract, the broker is exempted from giving notice under subsection 2
5) a contract of insurance is in force until there is compliance with subsections 1, 2 and 3
