The ensuing backlash revealed a broker community unequivocally opposed to these ideas. One of many groups to argue against the changes was the Insurance Brokers Association of B.C. Citing a lack of consumer complaints on the matter, the group implied there was no difference between selling insurance policies and furniture or cars. "Name any industry and you'll find mechanisms in place for motivating the sales force," the association wrote in its response to the committee.
Advocis, the Financial Advisors Association of Canada, warned that new restrictions would bind the industry in red tape.
If brokers had to explain complex commissions, such as contingent payments, it would be unduly confusing for the consumer, the group warned. And altering the overall incentive structure could disrupt the workings of a multibillion-dollar industry.
The pushback from the broker community worked. By the time of its final report in 2008, the committee's three key recommendations had been watered down. It no longer backed the idea that "clients first" should be enshrined in regulations, or that limits should be placed on commissions or perks. But the industry would have to start disclosing to the consumer any possible conflicts of interest.
Advocis endorsed the proposals, saying the industry was in fact already adhering to them. And on Dec. 8, 2008, the council of insurance regulators declared the debate over, and thanked the committee for "a job well done."
Brokers are expected to make customers aware of actual or perceived conflicts of interest, but this disclosure takes many forms.
"As you likely already know, agents and brokers in the life insurance business in Canada are compensated by commissions, bonuses and other inducements from the companies we do business with," says a letter that one broker group makes available to clients. Customers are asked to sign the letter, which describes "incentive-based compensation" as an "industry-wide practice," but makes no mention of specific figures.
This is enough disclosure, says Greg Pollock, the head of Advocis. "For the most part, we believe that the current structure of compensation in this country works well."
When it comes to auto and home insurance, the Insurance Brokers Association of Canada, which speaks for 33,000 property and casualty brokers, said its code of conduct requires brokers to disclose compensation - if a consumer asks. "The broker is required to divulge the method by which he is being compensated," said Steve Masnyk, a spokesman for the Insurance Brokers Association of Canada.
For instance, the broker might disclose that he or she will be paid a commission of between 10 and 15 per cent of premiums. Insurers also make general disclosure statements about compensation, usually on their websites, but details are limited.
The Registered Insurance Brokers of Ontario, the self-regulatory body for property and casualty brokers in Canada's largest province, also requires members to hand out a disclosure form that discusses compensation without divulging numbers.
But RIBO still uncovers cases in which agents do not have copies of the disclosure statement they are supposed to provide, through audits it conducts every three to five years. Tim Goff, manager of complaints and investigations at RIBO, says there is "95 to 99 per cent" compliance among brokers on this form.
The Insurance Council of British Columbia, meanwhile, has encountered cases where a broker has told a consumer incorrect information after the consumer asked for details of their compensation.
Mr. Bailey, the former head of an insurance broker, suggests the current system is not enough.
"[Brokers]should declare to the buyer: 'Just so you know, I represent the insurance company and not you. And I'm making significantly more money than you think I am,' " Mr. Bailey said. "Just disclosing the conflicts, in our mind, does nothing."
The 2008 detente with regulators signalled the campaign to head off reform succeeded. The industry diluted the suggested fixes down to a small number of voluntary measures.
"If you look at the system, the compensation, the way it all works, you'd be protecting it too," said a senior executive at a major insurer. "You don't want people asking questions, you don't want to disclose it, you don't want them to know you're going on a trip - because it's pretty good."
|SLF-T Sun Life Financial Inc.||41.54||
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