Automobile Insurance Supervision Plan 2023-2025

The Compulsory Automobile Insurance Act mandates insurance coverage for all motor vehicles operating on Ontario highways. The Financial Services Regulatory Authority of Ontario (FSRA) licenses and oversees the market conduct practices of approximately 170 insurers and 10631 agents authorized to sell automobile insurance to Ontario’s 10 million drivers. This translates to 70% of Ontario’s population requiring automobile insurance coverage when operating a vehicle. During fiscal year 2021, 79 insurers accounted for approximately $13 billion in Private Passenger Automobile insurance direct written premium. FSRA’s supervisory authority involves overseeing compliance with contract terms including mandatory policy limits, coverage of specified risks, and the use of standard policy language.

Automobile insurance conduct supervision helps to ensure vehicle owners and lessees are treated fairly, from obtaining coverage through to making claims. This is achieved through a combination of rules-based and principles-based approaches. Rules-based approach includes the Insurance Act and the Unfair or Deceptive Acts or Practices Rule, while Principles-based includes the Fair Treatment of Customers (FTC) Guidance issued by the Canadian Council of Insurance Regulators (CCIR).

As insurers continue to evolve, innovating the ways they operate, FSRA recognizes the importance of keeping abreast of these developments. Being physically present is among the most effective methods for understanding and confirming the operations of an insurance company, making on-site examinations a critical conduct tool. As a result, a risk-based approach was developed to prioritize examining the activities of insurers representing the highest risk to customers. Those activities include sales and distribution, underwriting, and policy servicing and will form the core of FSRA’s conduct supervision programs in automobile insurance over the fifteen-month period beginning January 2024. 

FSRA is committed to transparency and details of the Auto Supervision Plan are set out in the pages below.

Established in 2019, FSRA operates with the objective to enhance customer protection within the province by fostering high standards of business conduct and transparency in the sectors it regulates. One of FSRA's pivotal mandates revolves around overseeing the automobile insurance industry. 

This inaugural Auto Supervision Plan (Plan) is grounded in the Insurance Core Principles (ICPs) developed by the International Association of Insurance Supervisors (IAIS) and employs a risk-based approach to market conduct supervision. It builds on the progress made through the multi-year Take-All-Comers Thematic Reviewcompleted during the summer of 2023, with continued commitment to:

• ensuring the fair treatment of customers
• promoting public trust
• maintaining a robust insurance sector in Ontario

FSRA’s supervisory focus for 2023-2025 will prioritize examining insurer’s activities in the following areas, as detailed below: 

1. Sales & distribution 
2. Underwriting
3. Policy servicing

 FSRA has identified the following insurer activities as areas of potential risk for customer harm. These activities will form the core of FSRA’s on-site examinations under the Plan.

Sales & distribution 

Automobile insurance is sold directly by insurers or through intermediaries (agents/brokers). Like insurers, agents are licensed and supervised by FSRA while brokers are the responsibility of the Registered Insurance Brokers of Ontario (RIBO). Agents and brokers are authorized by the insurers they represent to issue a temporary binder, binding the insurer to risk.

While sales and distribution span several activities, this Plan will focus on the following two activities:

• Product Development – Automobile insurance is mandatory to operate a vehicle in Ontario, and as such, contract conditions and pricing require regulatory approval from FSRA. This means that insurers are required to file the underwriting rules which will be used to determine eligibility for coverage and the rates applicable to the risk once the decision has been made to provide coverage. FSRA Market Conduct is interested in the process used by insurers to ensure underwriting rules in proprietary and third-party quoting systems reflect those filed. This is critical in ensuring that eligible owners/lessees are provided with the lowest available quote when requested, regardless of the distribution channel.
• Disclosure to Customers – Before concluding a contract, customers should be appropriately informed of the premium amounts, policy benefits, duration, limitations, exclusions and their rights and obligations. This information enables the customer to make an informed decision before entering a contract. When the contract is concluded, insurers are required to provide evidence of coverage promptly after inception of the policy. FSRA Market Conduct is interested in the process used by insurers to ensure the information provided to customers is clear and timely, regardless of the distribution channel. This attention is aimed at preventing and/or identifying potential unfair or deceptive practices that may mislead customers in the absence of accurate and transparent information. Supervision of this activity will improve customer understanding, creating an environment where customers can make well-informed decisions about their insurance needs. 

Underwriting 

Customers interested in obtaining insurance coverage, together with the insurer or appointed intermediary, complete a standard application where details of the risk and amount of coverage required are gathered. The completed application is further assessed by underwriting (automated or manual), in accordance with the Take-All-Comers requirement. This process may result in either the rejection of the application or the issuance of a policy for the desired term. This approach aligns with our commitment to transparency, as outlined in the Take-All-Comers Guidance. 

Policy underwriting is critical to both insurers and customers as this is where risk exposure is selected, classified, and priced. As a result, this is a core area of supervisory concern for FSRA, ensuring that underwriting decisions are based solely on filed underwriting rules and, in the case of rejection, that customers are provided with written notice citing the specific underwriting reason(s) for rejection. By focusing on underwriting, FSRA aims to eliminate potential discriminatory practices affecting higher risk customers, ensuring insurance companies operate in a fair and transparent manner. This results in insurance being readily accessible at the best available price.

Policy servicing

Insurers and intermediaries are required to service policies until all obligations are settled. This includes handling: 

• Policy changes – Insurers and their intermediaries process policy changes requested by policyholders or initiated by the insurer. This includes increase/reduction in coverage, cancellations, endorsements, renewals and change in risk. Insurers are also responsible for providing information on any contractual changes during the policy term, including the disclosure of relevant information on a timely basis. FSRA will evaluate the protocols implemented by insurers to ensure compliance with legislative and other requirements, such as providing sufficient advance notice for insurer-initiated cancellations. 
• Claims - In the event a policyholder suffers a loss during the term of the policy, an accident report is submitted that starts the claims process. A fair and transparent claims handling process is a key element in customer protection. FSRA will review insurers’ claims handling processes to ensure claims are processed in a timely, fair, and transparent manner.
• Complaints – Insurers are required to implement complaints handling protocols which are communicated to policyholders. Rejected or denied claims are common reasons for policyholder complaints against insurers. FSRA will review the number and type of complaints against insurers, as well as how they were resolved, as an indicator of the nature and quality of insurers' business conduct.
• Privacy/Protection of customer information - Insurers and intermediaries use, share and store information collected on their customers. Customers have a right to expect that personal information is kept confidential. Insurers and intermediaries are required to have policies and procedures for the protection and use of customer information. FSRA will review privacy protocols to ensure insurers and intermediaries disclose to policyholders how their personal information is used or shared with third parties. 

The Ontario Automobile Insurance Supervision Plan underscores FSRA’s commitment to regulatory excellence and the fair treatment of customers. By adopting a risk-based approach, FSRA can dedicate its resources to areas representing the greatest potential harm to protect policyholders, build trust, and strengthen the insurance sector. Ongoing supervision through on-site examinations, as outlined, will ensure the highest standards of compliance with insurance laws and FTC principles. Executing this plan is crucial in ensuring the continued success of Ontario's automobile insurance industry. FSRA is committed to transparency and the outcomes of this proactive supervision work will be shared to promote industry compliance with regulatory requirements and will be used to inform future supervision programs in automobile insurance.

The senior management and Board of Directors of insurers are responsible for the design, implementation, and monitoring of mitigation strategies to ensure customers are treated fairly. FSRA expects insurers to review the Plan, and other relevant publications, to ensure they are complying with the law and regulatory expectations.

FSRA welcomes comments from stakeholders on this supervision plan. Your comments will help inform our current and future supervision priorities and will increase our understanding of the Automobile Insurance sector.