The Canadian fintech review: Insurtech

The marriage of insurance and technology presents a way for intermediaries and insurers to reinvent how they do business. With the industry now perched on the cusp of an insurtech revolution, the market is experiencing the next wave of efficient products and transparent processes.

Jill McCutcheon and Brigitte Goulard discuss the current state of play for the insurance industry in Canada, including:

  • How insurance is regulated
  • The adoption of insurtech in Canada
  • How technologies impact FTC plans

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Brigitte Goulard (00:06): Jill, why don't you tell us a little bit about the success of insurtech in Canada? Has it been very successful?

Jill McCutcheon (00:13): So it's a great question because we sure hear a lot about insurtech. I mean, every industry paper, every industry conference we hear about insurtech. And of course, it covers the whole spectrum, from buying, to administration, to termination, to claims. I would say, though, that at least in the connection with the buying of insurance, probably less than 2% of transactions are concluded digitally or on the on the web. So it's been a little slow in the uptake. But of course, it's very important to the future of insurance industry participants that they have a foot in the door with insurtech.

Jill McCutcheon (00:59): Part of the reasons it's been slow is that we have a lot of different regulators in Canada for insurance. We, in fact, have 17 of them. And there's a lot of them. And they all like to make their own rules or they all have their own laws with slightly different requirements. And so that has made it, I think, a little more difficult for insurtechs to take hold because they have to have a solution that works across the whole country, which they can't always achieve. So an example would be... Brigitte, you have a car accident at the side of the road, you're asked for your proof of insurance, and in some provinces you can show that proof on your phone, but in other provinces you couldn't. Some provinces don't allow for electronic proof of insurance.

Brigitte Goulard (01:51): It must be frustrating for companies with whom you deal with that operate across Canada and have kind of this patchwork of what can be done. Does that mean they just abandon the idea until it's spread throughout the provinces? Or do they do the patchwork?

Jill McCutcheon (02:08): So that's a great question actually, because in Ontario, there is a patchwork. There's no question. And it is frustrating because we have a lot of foreign insurance intermediaries and companies, or fintech firms that are coming to invest in what is otherwise viewed as an attractive market. And then you run into these minuscule rule differences in each and every jurisdiction, which very much make the architecture for these insurtech solutions more challenging. But interestingly, in Ontario we have a regulatory sandbox which FSRA [Financial Services Regulatory Authority of Ontario] is working with, so FSRA has the power to give you exemptive relief from certain provisions of the Insurance Act, for example, the obligation to be licensed, right? As an insurance intermediary, they could waive that provision for the purposes of allowing you to test your insurtech solution. So they are actually looking for people to use the sandbox. So if you know of anybody in the insurtech space, anybody that needs to try something out in a developed market in Ontario with a lighter regulatory burden, Ontario would be the place to come.

Brigitte Goulard (03:28): So it's interesting that you're talking about this patchwork. Have they just started discussing what they can do in terms of insurtech to facilitate this?

Jill McCutcheon (03:36): So they get together in two forums, the Canadian Council of Insurance Regulators and CISRO [Canadian Insurance Services Regulatory Organizations], which is the councils that you referred to, that deal with the licensing of intermediaries. And what's happened when CISRO got together, I think what you're referring to, they've agreed upon a group of principles called the “Fair Treatment of Customers”. The long and the short of it being that the product needs to be suitable throughout the lifetime of the product with the customer, not just at the point of sale, and that the product features need to be, you know, clearly described. I mean, these principles all come from the IAIS Core Principle 19 around Fair Treatment of Customers, and it's been picked up in Canada. And compliance people really like to talk about FTC. They just call Fair Treatment of Customers, “FTC”. The thing about it is it's a bit tricky for lawyers because they are very lofty principles and they're not necessarily set out in a law or a regulation or a rule. So sometimes it gets a little tricky to tell whether you're in compliance with these principles and, quite frankly, whether you need to be in compliance with these principles from tip-to-toe. And then CISRO, which is the ones that regulate the intermediaries, has gone further to adopt a code of conduct for insurance intermediaries. And it's really the logical extension to the Fair Treatment of Customers principles as it relates to intermediaries. So there are two provinces that have taken it sort of to the next level. So, Québec has the code of commercial practices, which is incorporated into the legislation and very much adopts Fair Treatment of Customer principles. So always a good place to go, the commercial practices code just because it is a bit more clear if you look at that code, and then British Columbia is going to be adopting something into a rule. And so we'll have something a little more concrete when those things are completed.

Brigitte Goulard (05:54): And how those rules transfer to insurtech? Like Fair Treatment of Customers, as you say, is very lofty and touch basically any type of interaction you may have with your clients.

Jill McCutcheon (06:08): Insurtech I think represents an opportunity for intermediaries and insurers to make FTC a reality.

Brigitte Goulard (06:18): I see, okay.

Jill McCutcheon (06:18): In other words, if you need information about a product or your circumstances have changed or, you know, you want to administer claims in a more transparent fashion, like my personal belief is that technology is absolutely providing a solution. So a really good example would be now when you have a car accident, most insurance companies, through their adjusters, have an insurtech solution where you can see the progress of your claim as it's being adjusted. Previously an adjuster came, looked at your car, you know, got you to sign a proof of loss, and then you waited to hear the next step, which could have been weeks and weeks. And so insurtech, I think, is absolutely representing a way to take it to the next level when it comes to transparency with our customers, which is a core part of the FTC principles.

Brigitte Goulard (07:15): So it's very good for customers for sure. It must also be good for the insurance company because they can have a better process. But is it good when there's an issue from a legal perspective, like isn't there more documentation that you would have to go through or different rules? What's the impact of regtech, for example, for lawyers?

Jill McCutcheon (07:39): Well actually, I'm going to probably rephrase your question. So what's going on with respect to Fair Treatment of Customers, which is connected to insurtech is that there is a survey out that the AMF is leading on behalf of CCIR, Canadian Council of Insurance Regulators, and they're asking a lot of questions about how Fair Treatment of Customers principles are embedded into everything you do, including absolutely, your technology solutions. But in inside those questions you can see they want insurers to adopt a public commitment to Fair Treatment of Customers. I see legal risk in that—

Brigitte Goulard (08:19): Yes, absolutely. Yes.

Jill McCutcheon (08:20): And so it is related to insurtech because, of course, it is how insurers and intermediaries will take their customer service to the next level. But a public commitment to these lofty principles strikes me as posing a risk, because there’s always going to be someone who thinks that you didn’t quite meet that standard. It could be a cause for a class action, it could be a lot of reasons. But I think what the industry response has been is to say, look, we have the principles of Fair Treatment of Customers embedded in everything we do, in our producer code of conduct, in our business code of conduct, in our conflict of interest code, you know, in our complaint handling procedures. So we don't need a separate public commitment.

Brigitte Goulard (09:13): At the beginning when we started talking, you were saying how little there's been usage, and most of it is because it's a patchwork. So how long do you think it's going to be before we actually see real progress? That we can see that things are happening at a scale, where it's scalable that communities can use it?

Jill McCutcheon (09:31): Yeah, I mean, I think it's starting slow in terms of how many people actually buy over the internet, but it is much quicker in certain other areas on the backend, like around administration because it's a given that an insurer will save money if they can make the claims process more efficient, and they have control over that process, right? I mean, a lot of insurers are intermediary-driven, and they don't have control over the sales process. It is going to take off, there's no question in the next 10 years it's going to be revolutionary. In the next 10 years, certain technological developments will help to accelerate that. I think it's a given it's going to happen. I just can't tell you if it's next week or if it's, you know.

Brigitte Goulard (10:18): Yes.

Jill McCutcheon (10:18): And I think between big data and artificial intelligence, insurance is ripe for revolution. I don’t think there’s any doubt.

Brigitte Goulard (10:26): Yes. And you're right there! To help them revolutionize.

Jill McCutcheon (10:30): Oh, absolutely. Yeah, we love that stuff.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

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