On June 13, the National Assembly of Quebec passed Bill 141. This has resulted in the revision and modernization of all legislation governing the financial sector.
The statutory changes will come into force gradually during 2019 and 2020 (in addition to the provisions that are coming into force in 2018). Until such time, however, the ethical obligations of agents, brokers and claims adjusters remain unchanged.
An information letter was sent to damage insurance representatives outlining the main changes that affect them. Here are some further details on how Bill 141 will affect your professional practice.
THE PROFESSIONAL’S ADVISORY ROLE
First and foremost, the Chambre de l’assurance de dommages (ChAD) wishes to reassure industry professionals: all insurance products (with the exception of a few products that are already distributed without a representative, for example, Q.P.F. no. 5) will have to be distributed by representatives who are duly certified by the Autorité des marchés financiers (the Authority) and supervised by the ChAD.
The issue of advice provided by non-certified individuals seems to have created some confusion in the industry. Henceforth, the act of advising will indeed no longer be included in the definition of damage insurance agents and brokers; the professional’s exclusive right to do so has been eliminated in order to also allow non-certified individuals to provide advice. However, non-certified individuals will not be able to offer insurance products to consumers; their power is limited to providing advice in this area. Thus, an individual who sells insurance must be a professional holding a licence in the field for which he is authorised to sell products.
Finally, although the wording of section 27 of the Act respecting the distribution of financial products and services (ARDFPS) has been changed, a representative’s duty to advise still remains central to his practice, since it enables him to identify the client’s real needs and advise him properly:
Insurance representatives must inquire into their clients’ situation to assess their needs.
They must be sure to appropriately advise their clients regarding matters that fall within the sectors in which they are authorized to act; if they can, they shall offer their clients a product that meets their needs.1
The obligations of damage insurance professionals therefore remain unchanged. Bill 141 has not affected the codes of ethics of representatives and claims adjusters and their professional development obligations remain the same.
PERSONALLY GATHERING THE INFORMATION
A study conducted by the CEFRIO2
that was published in March 2018 showed that 33% of Quebeckers request automobile insurance quotes online, while 22% request home insurance quotes online. In order to keep up with the times, the government has therefore eliminated the representative’s obligation to personally
gather information from the client.
The agent or broker must nevertheless verify the authenticity of the information gathered in order to fully understand the client’s needs and advise him appropriately. His code of ethics also obliges him to “take into account the intervention of a third party that could affect the carrying out of his professional duties to the detriment of his client or the insured.”3 The representative must therefore make sure that a third party does not interfere in his client’s file—for instance, when a father shops for car insurance for his child—since his goal is to ensure that he is familiar with the insured’s needs and actual situation, and be able to act as a conscientious advisor.
AN OBLIGATION AT RENEWAL TIME
Since over fifty percent of Quebeckers do not re-evaluate the value of their property at renewal time4
, it is important for representatives to treat policy renewals with as much care and diligence as new business. Representatives must be proactive, verify the insured’s needs and redo the analysis, as well as validate current coverage and provide advice.
Using the method or means he deems most appropriate (phone call, written communications, face-to-face meeting, or site visit), the agent or broker must ensure that the client’s insurance product continues to meet his needs.
A recent ChAD survey showed that 61% of Quebeckers do not notify their damage insurance representative of major changes affecting their residence, such as extensive renovations, adopting a dog or purchasing expensive electronic equipment.5 The professional thus plays a crucial role in helping insureds to avoid being under-insured.
On June 13, 2019, section 39 of the ARDFPS will be changed to include the new provisions of Bill 141. The section will read as follows (changes in bold):
Until then, it is the professional’s obligation at renewal time to take the necessary steps to ensure that the coverage provided still meets the client’s needs. Please read the Procedure – Renewing an Insurance Policy
to help ensure that you continue to respect your current obligations.
In summary, agents and brokers should never merely renew a policy automatically without taking any further steps. Your role as an advisor is invaluable in terms of protecting the public.
All persons who distribute insurance products must be duly certified by the Authority and overseen by the ChAD. In June 2019, certain statutory changes will come into force that will affect the oversight of insurers and firms with respect to the sale of insurance products over the Internet. Insurers and firms will nevertheless have to comply with their obligations to inform and advise, as stipulated in the legislation. They will also have to make a duly certified representative available if the client wishes to communicate with a natural person during the online subscription process.
The Authority will establish a regulatory framework that will set clear expectations regarding online distribution. The framework will undergo public and industry consultations before being presented to the Minister of Finance for approval. The ChAD will actively collaborate in this consultation in order to ensure that the protection of the public remains the cornerstone of this much-needed and eagerly awaited modernization.
Several provisions coming into force on December 13, 2019 will affect brokerage firms. For instance, personal-lines damage insurance brokers will have to obtain quotes from at least three insurers who do not belong to the same financial group. The new section 38 of the ARDFPS reads as follows:
Damage insurance brokers who offer insurance products directly to the public must, each time they offer an insurance product belonging to a class determined by regulation of the Authority to a client who is a natural person, be able to obtain quotes from at least three insurers who do not belong to the same financial group, within the meaning assigned to that expression by section 147.
Such brokers must keep the information allowing them to prove that they made every effort to comply with the first paragraph and must update such information regularly. The regulation made for the purposes of this section may only pertain to damage insurance products intended to meet personal, family or household insurance needs.
While this new provision will not oblige the broker to present the client with three quotes from different insurers, personal-lines insurance brokers will nevertheless have to show that their firms have distribution agreements with three insurers who do not belong to the same financial group.
Furthermore, if a “financial institution, a financial group or a legal person holds an interest allowing it to exercise more than 20% of the voting rights attached to the shares issued by the firm or an interest representing more than 50% of the value of the firm’s capital“6, the firm will not be able to maintain its registration with the Authority as a brokerage firm.
Moreover, agencies and firms will also have to “disclose on [their] website and in [their] written communications with [their] clients, the names of the insurers for which [they] offer insurance products.”7
By December 2019, the Authority will have clarified its expectations in this regard in order to help brokerage firms implement these new legal obligations. The ChAD—which is responsible for inspecting brokerage firms with 24 or fewer representatives—will work together with the Authority to ensure that these firms, as well as their brokers, comply with the legislative changes.
CHANGES TO CONDOMINIUM INSURANCE
Over the next few years, changes to the Civil Code of Québec affecting condominium insurance will also come into force. They include: a mandatory appraisal of the building [the “immovable,” in the Code]8, conducted every five years by a member of a professional corporation; an obligation requiring the directors of the syndicate and the condominium unit owners to purchase liability insurance; the use of the expression costs of reconstruction instead of replacement cost; and the obligation of the syndicate to create a liquid self-insurance fund available at short notice to pay the deductibles specified in the insurance contract.
The minimum amount of liability insurance and the self-insurance fund, as well as the criteria regarding whether or not a deductible is considered unreasonable, will be determined by way of government regulation.
The syndicate of co-ownership will also be obliged to provide co-owners with a description of the private portions that is detailed enough to identify improvements the co-owners have made. Condominiums created before June 13, 2018 will have two years to comply with this obligation. Others will have six months to do so. Agents and brokers will have to ask for this description in order to properly assess the risk for underwriting purposes.
In conclusion, the syndicate’s insurance will be its front-line insurance in the event of a loss. If the syndicate of co-ownership decides to not avail itself of this insurance in the wake of a loss, it will be responsible for repairing the damages to the insured property and will not be allowed to sue the co-owners who were responsible for damages that the syndicate’s insurer would have otherwise paid for.
A regulatory framework will be created to implement all the upcoming changes. At the appropriate time, the ChAD will update all its online condominium tools and inform all representatives that it has done so.