The Chambre de l’assurance de dommages (ChAD) provides representatives with a procedure that explains when, why and how to end the agreement that mandates a representative to find insurance coverage for the client. This agreement, which mainly concerns brokers, is commonly called the “termination of mandate.” The mandate and the insurance contract are two separate things; consequently, when a contract expires or when the insurer terminates it, it does not necessarily mean that the mandate has been terminated.
Representatives and clients both have the right to end the agreement. In either case, the ChAD recommends that professionals send a termination of mandate letter to confirm their decision, and notify the client of the situation and its consequences. In so doing, professionals ensure that they have complied with their ethical and legal obligations. Here are the five most frequently asked questions that the ChAD receives regarding the termination of a mandate.
1. Can I terminate my mandate before the expiry date?
Representatives who decide to end their mandate must have reasonable grounds for doing so, such as being unable to find the client a contract, the client losing trust in their services, having a difficult relationship with the insured, being in a potential conflict of interest, or the insured refusing to pay the premium or the fees billed.
It is preferable to not terminate a mandate before its expiry date, however it can be done if you have taken the appropriate steps to avoid causing your client any prejudice.
Representatives who have no valid grounds for terminating their business relationship with a client are seen as potentially causing prejudice to the client. Other situations that could also invalidate the termination of a mandate before the expiry date include: terminating one’s mandate unreasonably close to the policy renewal date, or terminating retroactively; or not cooperating when the client asks for a change of mandatary.
When you unilaterally terminate your mandate during the term of the insurance policy, you must send a termination of mandate letter to the insured and help them transfer the policy to another firm. You must also make sure to properly follow up with the client before closing their record. A mandate truly ends when the transfer of the insurance record has been completed.
The ChAD provides professionals with a form letter specifically designed for “before expiry” cases; it can be personalized to suit your needs.
2. What is the minimum timeframe for notifying a client when terminating the mandate?
Although there is no prescribed timeframe for terminating a mandate, you must do so within a reasonable period of time before the policy comes due for renewal. A “reasonable timeframe” means a minimum of 30 days, or as soon as you have decided to end the mandate. This avoids leaving insureds without insurance coverage and also ensures that they have enough time to purchase a new policy.
3. Must I explain my decision in the letter?
You are not required to give any specific details on why the mandate will be terminated. What is most important is that you ensure that your client understands the situation and that they have been informed of the consequences of terminating the mandate. For example, the insured must clearly understand that ending their insurance coverage means that they must immediately take steps to find new insurance coverage from another representative.
That said, the termination of mandate letter must include the policy number(s) affected by the termination of the mandate, the name of the insurer, and the contract’s expiry date. Sometimes, a mandate may cover several risks or locations that are insured under the same policy. If this is the case and you are terminating the mandate for only one risk or location (for instance, you are unable to renew insurance coverage for a cottage), you must clearly explain this to the client.
The ChAD provides representatives with several termination of mandate form letters that you can personalize to suit your needs.
4. If the insurer terminates the contract for non-payment, must I terminate the mandate?
If the insurer terminates the insurance policy for non-payment, you can attempt to find another contract for the insured. If you are unable to do so, or if you are no longer willing to act as the insured’s mandatary, you may terminate the mandate. If this is the case, you must send the insured a letter explaining the situation.
5. Must an agent write a termination of mandate letter if the insurer terminates the contract?
The procedure for terminating a mandate mainly affects brokers. Since an agent is generally considered to be the insurer’s mandatary, it is not the agent’s responsibility to send the termination of mandate letter to the insured; the notice of termination or non-renewal the insurer sends is sufficient.
However, it may be necessary for “affiliated” agents to send a termination of mandate letter if the name of the firm does not include any reference to the insurer’s name. The letter the agent sends does not have to include the words “termination of mandate,” however it must clearly explain to the client that their business relationship has ended.
1 Sections 26 and 37(4) of the Code of ethics of damage insurance representatives.
2 Sections 2175 and following of the Civil Code of Québec.