Insurance regulators are consulting on a potential ban on upfront commissions for segregated funds and individual variable insurance contracts (IVICs).
The industry was waiting consultation documentreleased Thursday as the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) earlier this year said they planned to consult on upfront commissions.
At the time, regulators also urged insurers to stop new sales of segregated funds with deferred sales charges (DSC) to comply with the June 1, 2022 ban in the securities space. They also said insurers should expect to see a ban on DSC sales by June 1 next year.
At issue are investor protection concerns and potential regulatory arbitrage when different compensation rules apply to different products (i.e. segregated funds/IVICs vs. mutual funds).
In a consultation paper on Thursday, regulators said upfront commissions in segregated funds raise investor concerns, such as conflicts of interest and alignment of costs with services.
The consultation aims to understand the impact of a ban on initial commissions or other changes to them, as well as a reasonable period for the insurance industry to adapt to any changes.
The “key effect” of addressing the initial commission issue is the fair treatment of customers, as stated in the article, as described in point conductivity.
Therefore, the regulatory approach will focus on issues such as resolving conflicts, increasing customer awareness of remuneration, aligning commissions with the services provided and avoiding mis-selling of segregated funds and IVICs instead of other products due to different remuneration.
The deadline for comments on the consultation document is November 7.
