The Financial Services Regulatory Authority of Ontario (“FSRA”) held an 80-day public consultation on proposed Information Guidance for Operational Risk Management Framework in Rating and Underwriting of Automobile Insurance.
Thank you to those who provided feedback.
This proposed Information Guidance is intended to articulate foundational and sound practices for operational risk management (ORM) in the rating and underwriting of automobile insurance to promote just, reasonable, and accurate rates. It will also support fair treatment for consumers engaged in the underwriting process.
The consultation launched on December 8, 2021 and concluded on February 25, 2022
Stakeholder feedback and FSRA’s responses
Comments were received from four insurers and three industry groups who brought forth valuable insight about current practices and recommendations to further protect Ontario’s automobile insurance consumers.
FSRA amended the Guidance to address stakeholder feedback as identified in the summary below:
Comments
FSRA's response
Questioned consistency with OSFI’s guidelines vs. FSRA guidance, concerned about unnecessary complication and burden if not in alignment
Added the linkage between operational resilience and effective ORM to align with OSFI’s proposed changes to Guideline E-21
Concerned the FSRA guidance has more components than OSFI’s (e.g. data governance, third-party products and services, etc.)
No change. FSRA’s ORM guidance focuses on Ontario auto rating and underwriting business and includes additional areas to improve compliance
Comments
FSRA's response
Requested clarification surrounding whether first line or second line would be responsible for independent model review (e.g., modified process and technical expectations)
Clarified the proportionality principle for the adoption of 2nd line’s independent model review function
Asked FSRA to provide definitions of key terms in relation to model governance, e.g., model fairness, explainability. Concerned with the term ‘fairness’, suggest providing outcome examples or consider “justified bias” as alternative
No Change. Definition of fairness is addressed separately in the legal framework for underwriting and rate regulation strategy
Comments
FSRA's response
Desired for continued education to understand the principle-based approach
No change. Continue communicating with stakeholders as part of consultations in support of FSRA’s strategy to reform the regulation of automobile rates and underwriting
Did not understand types of FSRA Guidance or appropriate company action/responses
Provided clarification to FSRA’s guidance framework
Sought clarification on how to operationalize guidance, including whether they have flexibility to determine their own framework, how it would work for small companies, implementation timeline, etc.
Added clear messaging to communicate FSRA’s plan to transition to Interpretation and Approach Guidance, and how ORM relates to FSRA’s broader strategy to reform the regulation of automobile rates and underwriting
Expressed more acceptance to implement ORM as an incentive to access to expediated filing rather than ORM as a regulatory compliance requirement
No change. Continue communicating with stakeholders as part of consultations in support of FSRA’s strategy to reform the regulation of automobile rates and underwriting
Comments
FSRA's response
Recommended that the intent of the risk prioritization for new risk and periodic review of all high-risk areas become clearer
Clarified in the guidance that the intent is to ensure operational risk is within the insurer’s risk appetite
Commented that 2nd line of defense is also a tool for ORM, in addition to process and policies
Clarified the 2nd line’s role of design and implementation of ORM framework besides its role of independent oversight of 1st line’s activities
