Strengthening protection for Life Insurance customers

The Financial Services Regulatory Authority of Ontario (FSRA) is continuing to strengthen protection for life insurance customers who have segregated fund contracts.

FSRA has now submitted a proposed amendment to the Unfair or Deceptive Acts or Practices (UDAP) Rule to the Minister of Finance for approval. The effect of the changes would be that there will be no more new sales of segregated fund contracts that impose charges on customers for early access to their investments.

If approved, the amendment will:

  • ban insurers from issuing new individual segregated fund contracts that use deferred sales charges (DSCs) on or after June 1, 2023
  • ban insurers from changing existing segregated fund contracts to add DSCs or make the DSC less favourable to customers
  • clarify that insurers can, in some cases, replace existing contracts that involve DSCs with very similar contracts but only if they do not restart the time period that allows them to charge for early withdrawal. For example, this will allow an insurer to replace an RRSP contract with a RRIF version when a customer needs it.

If the Minister approves the proposed amendment, it will take effect 15 days after the Minister’s approval.

In the spring, FSRA plans to launch consultations on an updated version of another amendment to the UDAP Rule that would address concerns regarding DSCs in contracts that already exist.

The previously proposed amendment would introduce customer protections around the use of DSCs such as customer disclosure requirements. The updated amendment would simplify the information a customer would receive if their insurer uses its pre-existing contractual right to switch the customer from a DSC to a sales charge option that is in all ways more favourable to the customer. In this situation, such disclosure may occur later since early disclosure is not required for the switch.

The same approach would not be available for an insurer switching a customer to a sales charge option that is not in all ways more favourable to the customer.

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FSRA continues to work on behalf of all stakeholders, including consumers, to ensure financial safety, fairness, and choice for everyone.

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