FSRA has launched a public consultation seeking feedback from insurance consumers, industry and other interested stakeholders for its first proposed insurance rule.
The proposed rule is aimed at making the supervision of insurance more transparent, dynamic, and flexible. The draft rule also focuses on the need for stronger consumer protections by clearly defining outcomes that are unfair or otherwise harmful to consumers.
The new rule, if approved, would better enable innovation, competition and choice. For example, the new rule would allow insurers to offer their customers incentives including rebates or rewards that meet certain criteria.
FSRA continues to monitor the insurance system and take steps to address misconduct. The UDAP rule applies to insurers, brokers, intermediaries, adjusters and providers of goods and/or services engaged in the insurance sector. It applies to, but is not limited to, health service providers, tow truck operators, vehicle repair shops and automobile storage facilities.
FSRA is holding a 90-day consultation on its proposed rule and is seeking feedback from the general public and all stakeholders.
The proposed UDAP rule is available for review: Proposed Rule [2020-002] Unfair or Deceptive Acts or Practices.
Please provide your comments no later than March 18, 2021 by selecting “Submit a comment or ask a question”.
UDAP Questions and Answers
What is UDAP?
Unfair or Deceptive Acts or Practices (UDAP): Section 439 of the Insurance Act prohibits “unfair or deceptive acts or practices”. O. Reg. 7/00 (UDAP regulation) under the Insurance Act prescribes specific actions that are considered as unfair or deceptive, and may apply to insurers, brokers, intermediaries, adjusters, and goods/service providers engaged in the insurance sector such as health service providers, vehicle repair shops, automobile storage facilities, and tow truck operators.
The legal concept of a “UDAP” is a critical element of FSRA’s approach to protecting consumers against a wide range of potential harms in the insurance sector. Under the Insurance Act, FSRA has the authority to examine and investigate whether a person involved in the business of insurance has been, or is, engaged in any UDAP. The Insurance Act also allows FSRA to administer various compliance measures, such as administrative penalties, to sanction unfair or deceptive acts or practices.
Why has FSRA drafted a new rule to replace the existing UDAP regulation?
The Financial Services Regulatory Authority of Ontario Act, 2016 provides FSRA with rule-making authority. FSRA has drafted a principles-based rule that can provide FSRA with additional flexibility in supervision of conduct in insurance and can enhance consumer protection.
The current UDAP regulation is not aligned with FSRA’s principles-based approach to protecting consumers. Insurance stakeholders have requested a review of the current regulation to allow for more flexibility and have stated that the regulation is too prescriptive and a barrier to innovation.
What is principles-based regulation (PBR)?
A principles-based approach to regulation includes high-level principles from the regulator, instead of focusing on prescriptive rules prohibiting certain actions. PBR sets clear expectations for intended regulatory outcomes. It provides flexibility for regulated entities to determine their approach to meet those expectations and achieve the outcomes. PBR better serves the public interest by allowing more innovation, competition and choice.
How will the proposed rule enhance consumer protection?
The proposed rule is aimed at making the supervision of insurance more transparent, dynamic, and flexible. The draft rule also focuses on the need for stronger consumer protections by clearly defining outcomes that are unfair or otherwise harmful to consumers. The proposed rule is intended to improve the identification, deterrence and sanctioning of misconduct to better protect the public interest. This includes the unfair treatment of consumers, abusive claims practices and behaviour that is deliberately intended to mislead consumers.
What are some new things that insurers can do under the proposed rule, and how will consumers benefit?
In addition to strengthened protection, consumers will benefit from FSRA’s proposed changes intended to encourage innovation, competition and choice. For example, the new rule would allow insurers to offer their customers incentives including rebates or rewards that meet certain criteria.
Subject to meeting certain fair treatment standards outlined in the proposed rule, examples include (but are not limited to):
- An insurer could offer their customer a rebate on their auto policy premium for good driving behaviour
- An insurer could provide a consumer with a paid-for/subsidized plumbing inspection to help mitigate the risk of water damage-related losses
- An insurer could reward a consumer with a gift card for behavior that reduces insured risk
Note: These new possibilities are additional to discounts on premiums that auto insurers can already offer to reward good driving behavior to customers that are enrolled in Usage-Based Insurance Programs.
Since the proposed rule will allow insurers to offer rebates/rewards, what are the measures that will protect consumers from improper rebating?
The new rule would allow insurers to offer rebates and incentives to consumers so long as those incentives:
- do not lead to decisions that are against the interests of consumers;
- are not prohibited by law;
- are transparently communicated; and
- are not unfairly discriminatory or anti-competitive.
Will the proposed changes make premiums go up?
FSRA does not expect the proposed changes to make premiums go up. By allowing more competition and innovation, and setting clear standards for consumer protection, the proposed rule is intended to benefit insurers and consumers alike.
The proposed rule is being posted for consultation and FSRA welcomes feedback on this or any other potential unintended consequence.
Where can I go for more information?
The proposed rule is now available for review Proposed Rule [2020-002] Unfair or Deceptive Acts or Practices. FSRA is inviting the general public and all stakeholders to provide their feedback by March 18, 2021.
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