Chapter 15 - Regulation of Brokers Flashcards
Person’s responsible for the administration of the Insurance Act.
The administration of the Insurance Act is the responsibility of the Superintendent of Insurance, or the Superintendent of Financial Institutions (BC), or the Commissioner (ON)
In the provinces of BC, AB, SK & MB, who is responsible for the following administrative functions:
Licensing
Handling Complaints
Discipline of Brokers
Independent Insurance Councils have been delegated to licensing, handling complaints & the discipline of brokers.
These councils are also responsible for the development of by-laws, regulating conduct and trade practices of all brokers.
**These decisions can be appealed to the Superintendent of Insurance.
What are the qualifications necessary for licensing?
The Insurance Act requires that:
1. Anyone that sells insurance to be licensed.
2. Said people have to be sponsored by the brokerage firm that employs them
3. To obtain an initial license, they must be of good character & reputation & pass an approved examination.
In some provinces, the initial course of study is the only course required for licensing. Other provinces have, or are working to adopt , a “step licensing system”. Under this system, various levels of licenses are established. The degree of knowledge required for licensing increases with each level. Give an example of the Step Licensing System (BC).
The step licensing system used in BC incorporates three levels of licensing:
Level I - Licensees are permitted to sell all types of general insurance. Sales activities are restricted to the brokerage office only & licensees must be supervised by a Level II or Level III licensee.
Level II - Licensees are permitted to sell all types of general insurance inside or outside the brokerage premises, but are not permitted to own or manage a brokerage. They are subject to the supervision of a Level III licensee.
Level III - Licensees are permitted to sell all types of general insurance and are qualified to own and manage a brokerage.
NOTE: In ON, there are 3 levels of licenses. Their level I Licensees are “restricted to operating under supervision. there are two levels of Level II licenses, including “unrestricted technical only” & “unrestricted (management/technical).”
Class of license, license term, and jurisdiction.
i)Brokers generally receive an All Classes (Other Than Life) license & are prohibited from selling other classes of insurance, unless so licensed. For example, in ON, an additional license is required to sell travel insurance.
ii) A license is usually issued for one year. However, this is not standard across Canada. Here are some examples:
- Ontario - 1 year
- BC - continuous with annual filing requirement
- Nova Scotia - 3 years
In some provinces, licensees must complete a prescribed number of hours of continuing education in order to validate or renew their license.
iv) Brokers must be licensed in each province in which they do business. Moreover, it is an offence for an insurer to insure property in a province unless the policy is countersigned by a broker licensed in that province, to whom some part of the commission is to be paid.
What is the basis for termination of license.
All licensees are expected to maintain a high ethical standard in the conduct of their affairs. In simple terms, ethics relates to one’s moral duties & obligations to others.
1. Is guilty of misrepresentation, fraud, deceit or dishonesty.
2. Contravenes any provision of the Insurance Act or its equivalent.
3. Unreasonably fails to pay an insurer premiums collected and retained beyond the term stipulated in the Agency Agreement.
4. Places insurance with unlicensed insurers without complying with legislation relating to unlicensed insurers.
5. Proves to be incompetent or untrustworthy to transact insurance agency business for which the license has been granted.
6. Misuses trust funds.
What are the standards of conduct established by Insurance Councils/RIBO?
The majority of brokers/brokerages are members of their provincial brokers’ association. These associations strive to enhance the professional image of their members. As a result, the standards of conduct they set for themselves are generally higher than those required by law. In other words, while brokers may be in compliance with code of conduct established by government legislation, their conduct may fall short of the requirements of their own professional association. Failure of members to comply with these standards could result ina termination of the broker’s/brokerage’s membership in the association.
Brokers are expected to carry out their duties in accordance with what standards?
- Integrity
- Competence
- Quality of Service
- Advising Clients
- Confidentiality
- Fee Disclosure
- Encouraging Public Respect
- Maintaining Integrity of Profession
Provide examples of conduct which have been found not to meet the standard of:
INTEGRITY
- Conviction of a criminal offense, even if unconnected with the broker’s work.
- Misappropriating or dealing dishonestly with a client’s money or other monies considered to be held in trust.
- Taking improper advantage of a client’s inexperience, lack of education, youth, or lack of sophistication.
- Failing to be absolutely frank and candid in all dealings with insurers, other brokers, and other parties of interest, subject to the legal rights and confidences of the client.
Provide examples of conduct which have been found not to meet the standard of:
COMPETENCE
Brokers owe a duty to their clients to give competent guidance. Brokers who do not have a clear understanding of insurance principles and a sound knowledge of the practices and procedures to apply them effectively in the best interests of their clients are not judged to be competent. Brokers must be sensitive to any weakness in personal competence and realize that a disservice is done to clients when they attempt to act beyond their personal level of competence. In such circumstances, brokers should decline to act and advise clients to seek another broker with competence in the required area.
Provide examples of conduct which have been found not to meet the standard of:
QUALITY OF SERVICE
Brokers must make every effort to provide conscientious, diligent & efficient service. To meet this service standard, brokers must provide a level of service which is at least equal to that which an ordinary prudent & competent broker would provide in the same situation. Examples of conduct which have been found not to meet this standard include:
* Failing to return telephone calls, letters and other communications promptly and in sufficient detail.
* Failing to give sufficient notice of non-renewal (or of renewal on varied terms) of any policy.
* Failing to inform clients of alterations to coverages, such as changes in policy conditions or premium amounts, or any matter or fact which may materially affect the policy or prejudice the client’s interests.
* Failing to offer appropriate insurance so as to cause unreasonable gaps in insurance coverage.
Provide examples of conduct which have been found not to meet the standard of:
ADVISING CLIENTS
- Giving bold or sweeping general assurances to clients “that everything is covered” when this is not the case.
- After being terminated by an insurer, misleading clients about the true reason for re-marketing their coverages on expiry, particularly when it results in a material difference in the premium charged to them.
Provide examples of conduct which have been found not to meet the standard of:
CONFIDENTIALITY
Brokers should take care to avoid disclosure to one client of confidential information concerning or received from another client. The duty of confidentiality continues even after the broker has ceased to act for the client.
Provide examples of conduct which have been found not to meet the standard of:
FEE DISCLOSURE
Brokers shall not charge any fee on an individual policy of insurance in excess of the premium charged by the insurer, unless such fee has been clearly explained in writing to the insured. Such explanation must include the amount of the fee and the reason it is being charged.
Provide examples of conduct which have been found not to meet the standard of:
ENCOURAGING PUBLIC RESPECT
As insurance intermediaries, brokers are in unique position to affect how the public perceives the insurance industry. As such, care should be taken not to weaken or destroy public confidence in the insurance industry, and more particularly, the unique position of the broker as a professional independent intermediary.
