The Financial Services Regulatory Authority of Ontario (FSRA) held an 80-day public consultation on proposed Approach and Interpretation Guidance “Reporting and Resolution of Rating and Underwriting Errors”. Thank you to those who provided feedback.
This guidance informs Ontario auto insurers of FSRA’s requirements when rating and underwriting errors occur, and outlines:
the expectation for proper notice and resolution of rating and underwriting errors for auto insurance consumers
FSRA’s supervisory approach, ensuring rating and underwriting errors are resolved
The consultation launched on December 8, 2021 and concluded on February 25, 2022.
Stakeholder feedback and FSRA’s responses
The report below summarizes the consultation feedback and provides FSRA’s responses.
The comments received include submissions from five insurers and two industry groups who brought forth valuable insight about current practices and recommendations to further protect Ontario’s automobile insurance consumers.
The consultation confirmed support for the Guidance. FSRA amended the Guidance to address stakeholder feedback as identified in the summary below.
The following table summarizes the key themes raised during the consultation together with FSRA’s responses.
Comments
FSRA’s Response
Near misses (e.g., incorrect rates were implemented but no consumers were impacted) should not be included in the definition of minor errors.
Near misses have been removed from the definition of minor errors.
The thresholds are appropriate for larger insurers but not for smaller insurers or for recreational vehicle categories. Consider amending the threshold for major errors.
The major error threshold has been amended to include a minimum dollar amount and a minimum number of exposures and requires that both the dollar AND exposure thresholds be reached before an error is deemed major.
The threshold should apply to the insurer group, and it should be based on the total written premium and exposures (i.e., not by category).
Errors may only affect one category or one insurer, so it is appropriate to apply the threshold by category and by insurer.
An error should only be classified as major if 100 customers or more are impacted, regardless of the percentage of written premium or exposures.
FSRA is committed to a risk-based supervisory approach. Using a threshold of 100 customers with no consideration of the insurer’s size does not reflect the principle of proportionality.
To ensure consistent reporting across the industry, insurers should not be permitted to propose their own thresholds.
The option to allow insurers to set an alternate threshold has been removed from the Guidance.
Minor errors should not be reported but subjected to Market Conduct review on an annual basis.
The reporting of minor errors will give FSRA the opportunity to assess the overall risk level before allocating Market Conduct resources, as necessary.
Comments
FSRA’s Response
Errors take time to confirm, and the timelines may not be realistic. Timelines are also overly prescriptive and mixed timelines for reporting and resolving is confusing.
The timelines for reporting and resolution have been combined and amended from “25 business days from the time the rating and/or underwriting error is identified” to “30 business days from the time the rating and/or underwriting error is confirmed”.
A limitation period for older errors should be considered.
Statutory conditions are deemed to be part of every automobile insurance contract and they include the obligation to refund any overpayments, including interest. A limitation period is not included.
Minor errors should be reported to FSRA at the same time every year.
It is FSRA’s intention to require the reporting of minor errors at the same time every year.
Comments
FSRA’s Response
Publishing errors by company name, without full context, may result in unnecessary reputational harm to the insurer, the regulator, and the industry without achieving FSRA’s perceived goal of strengthening accountability. This approach may also distort consumers’ views of some insurers and may cause confusion. Any public statements by FSRA related to reported errors should narrowly focus upon the public’s interest.
The requirement to publish rating and underwriting errors, by company name, has been removed from the Guidance as it will not achieve FSRA’s transparency objectives. FSRA will create and publish an annual aggregate report that summarizes the errors reported under this Guidance.
Comments
FSRA’s Response
FSRA should take a less prescriptive approach to the proposed guidance for reporting and resolving of rating and underwriting errors. The thresholds section is the one area of the guidance where a deviation from the principles-based approach is acceptable.
The Approach section of the Guidance has been amended to give insurers more flexibility when reporting and resolving errors. The timelines for reporting and resolution have been combined and amended from “25 business days from the time the rating and/or underwriting error is identified” to “30 business days from the time the rating and/or underwriting error is confirmed”.
FSRA should set expectations for discovering and remediating rating and underwriting errors and direct insurers to build these into their ORM (Operational Risk Management) frameworks.
FSRA’s ORM Guidance includes a recommendation that insurers perform pre-implementation and post-implementation tests to mitigate the risk of errors.
The underwriting error definition should exclude delays in responding to existing and prospective clients triggered by temporary system availability or staffing levels.
Temporary delays in responding to existing and prospective clients due to unexpected system availability or staffing levels are within the scope of this Guidance.
With respect to interest, the Guidance should explicitly state that no interest is payable if the refund occurs within the same policy term. In addition, there should be no requirement to issue refund cheques for small amounts.
Statutory conditions are deemed to be part of every automobile insurance contract. Consequently, the obligation to refund any overpayments, including interest, is part of every automobile insurance contract in Ontario.
The Guidance should be thoroughly reviewed within one to two years of implementation to determine the cost/benefit of the process.
The timeline to review the Guidance has been reduced from three years to two years.
FSRA should consider the prevailing practices in other rate-regulated industries in Canada for the handling of billing errors with respect to rate-regulated products.
FSRA did consider the prevailing practices in other jurisdictions and will continue to look for regulatory best practices to ensure rating and underwriting errors are reported and resolved efficiently.
The FSRA rate analyst should remain an important part of the process.
The FSRA rate analyst will continue to be the main contact for rating and underwriting error submissions.
FSRA has made the following amendments to the Guidance:
“near misses” have been removed from the definition of minor errors
the description of a major error has been amended to include a minimum dollar amount and a minimum number of exposures and requires that both the dollar AND exposure thresholds be reached before an error is deemed major
the timelines for reporting and resolution have been combined and amended from “25 business days from the time the rating and/or underwriting error is identified” to “30 business days from the time the rating and/or underwriting error is confirmed”
errors are required to be reported to FSRA in writing (i.e. email) rather than through ARCTICS
the option to allow insurers to set an alternate threshold has been removed to ensure consistency in reporting
The requirement to publish rating and underwriting errors, by company name, has been removed from the Guidance. FSRA will explore options to create and publish an annual aggregate report that summarizes the errors reported under this guidance.
the timeline to review the Guidance has been reduced from three years to two years
