February 14, Ms. Carolyn Rogers, Chair Canadian Council of Insurance Regulators (CCIR) 5160 Yonge St. Toronto, Ontario M2N 6L9. Dear Ms.

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1 February 14, 2014 Ms. Carolyn Rogers, Chair Canadian Council of Insurance Regulators (CCIR) 5160 Yonge St. Toronto, Ontario M2N 6L9 Dear Ms. Rogers: The Canadian Association of Direct Relationship Insurers (CADRI) is a trade association representing insurance companies who offer automobile, home and commercial insurance products to Canadians on a direct basis. Whether through the web, on the phone or face-to-face, CADRI members provide end-to-end service and are in direct relationships with their customers through all steps of the sales and service process. CADRI monitors the insurance regulatory environment in all Provinces and Territories and supports regulation that encourages distribution accessibility and efficiency, technological innovation and other measures necessary for a healthy and competitive insurance market for the benefit of all Canadians. Because of their involvement as both distributors and underwriters of insurance products, CADRI members have developed a comprehensive understanding of all facets of the insurance business and are in a unique position to offer valuable input in the development of a Canadian insurance market regulatory framework that is responsive to customers needs. The members of CADRI are: belairdirect CAA Insurance Canadian Direct Insurance Co-operators General Insurance Desjardins General Insurance Group RBC Insurance State Farm TD Insurance CADRI members are pleased to have this opportunity to contribute to the development of the CCIR Strategic Plan CADRI did participate in the stakeholder meetings in October, 2013 and presented some initial views with respect to CCIR priorities for the next five-year period. This letter will provide further detail and context. 250 Consumers Road, Suite 301, Toronto, ON M2J 4V6 T: F: E: cadri@cadri.com W: www. cadri.com 250, rue Consumers, bur. 301, Toronto, ON M2J 4V6 T: F: C: cadri@cadri.com W:

2 Challenges Today, the insurance industry faces many challenges that impact on profitability and long-term sustainability. The pressure to contain costs as we continue to meet our customers needs will only increase as we have been faced with unprecedented weather related incidents and profitability concerns in several jurisdictions. A healthy and competitive marketplace can only exist when there is a balanced regulatory framework that provides appropriate protection for the consumer as well as the environment to foster innovation in the industry. Engaging consumers to ensure they are well informed is a key challenge for both insurers and regulators and direct insurers are focused on providing consumers with the tools they need to make informed decisions. How can CCIR deal with challenges facing insurers? CCIR can make a real difference for insurers across the country in several key areas. In the current environment, innovation is more important than ever in order to ensure companies can remain competitive and profitable. Innovations require extensive investment by insurers and do take time to implement so it important that a predictable and stable regulatory environment exists to allow insurers to focus on innovation and improving service for consumers. Key initiatives are underway with respect to usage based insurance and electronic commerce Usage Based Insurance (UBI) As the industry looks to innovative methods to distribute costs fairly and to promote competition, UBI has become an important tool. The guidelines that were released in Ontario provide parameters for companies to adopt UBI. Given that Ontario has already established its parameters, we believe that it makes sense for CCIR to develop a national approach to regulating UBI. A national framework or harmonized approach would allow companies to streamline this product and provide it to customers across the country. Electronic Commerce The CCIR Electronic Commerce working group conducted extensive consultations over the past two years and have produced a thorough analysis of the issues related to electronic commerce. CADRI members would like to take this opportunity to congratulate the CCIR working committee on its thorough and balanced report. We are pleased that the report by the CCIR focuses on positive consumer outcomes and CADRI is of the view these outcomes are being adequately addressed by the current regulatory framework. 250 Consumers Road, Suite 301, Toronto, ON M2J 4V6 T: F: E: cadri@cadri.com W: www. cadri.com 250, rue Consumers, bur. 301, Toronto, ON M2J 4V6 T: F: C: cadri@cadri.com W:

3 Reducing costs We would like to take this opportunity to congratulate CCIR on the creation of a central database for agent discipline. CADRI members are very supportive of this work and encourage CCIR to look for other ways to centralize. For example, we are supportive of the Alberta Insurance Council s (AIC) initiative to create a common agent number and are hopeful that this step could eventually result in a virtual national database. CADRI supports regulatory regime that focuses on positive consumer outcomes. In that context, we encourage CCIR to explore any and all options for harmonization of licensing requirements across the country. Complying with different licensing requirements across jurisdictions is a particular challenge for CADRI members from a cost and efficiency point of view. CADRI members would like to highlight some views that we shared with GISA during its strategic plan consultation. CADRI contributed to a survey that was conducted by GISA as it prepares its strategic plan for CADRI is of the view that the statistical plan is in need of a thorough review. It is an expensive process for collecting very detailed statistical data not only at the level of the statistical agent but for the individual companies too. CADRI believes that the statistical plan should be reviewed to ascertain if its efficiency and cost-effectiveness could be improved. It will be important for both GISA and CCIR to reflect on what data is essential and how best to collect data to ensure that key unbiased information is put the public domain in a cost-effective and efficient manner. CADRI is pleased to have had the opportunity to provide input on the strategic plan and look forward to continuing to work with CCIR over the coming years. Yours truly, Alain Thibault, Chair Canadian Association of Direct Relationship Insurers 250 Consumers Road, Suite 301, Toronto, ON M2J 4V6 T: F: E: cadri@cadri.com W: www. cadri.com 250, rue Consumers, bur. 301, Toronto, ON M2J 4V6 T: F: C: cadri@cadri.com W:

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12 Re: Response to CCIR Strategic Plan What are the challenges facing the insurance industry? The challenges facing the industry are the multitude of regulatory differences such as licensing, required Errors and Omission insurance coverage as well as product suitability between the various provinces for both advisors and MGA s. Standardization of these regulations across the country would improve advisor and MGA understanding and adherence and ultimately consumer protection. A national advisor regulatory database which would be developed and maintained by the industry, which would provide the level of licensing and a record of any regulatory and/or disciplinary activity on an advisor. This would greatly enhance the ability of MGA s and Insurers alike to assess the suitability of an advisor. Consumer access to certain area s of this database would allow them to review information such as licensing about an advisor with whom they may be considering doing business. 2. In your view, what do you see CCIR doing to deal with those challenges? The CCIR could be the catalyst in the harmonization of all the rules and regulations as well as licensing requirements. Evaluate a separate class of licensing for MGA s nation wide reflecting the role of the MGA s as a conduit between the advisor and the Insurance company and taking away the confusion of seeing the MGA as an agent dealing directly with the consumer under the current licensing arrangement. This would also provide for a regulatory database of all MGA s in Canada. 3.What specific initiatives should CCIR continue or undertake over the next three years? The availability of electronic processing new business submissions (e-apps) is well underway with most carriers. To encourage, under the subject of smart systems within the new business submission process, the inclusion of as many mandatory regulatory fields as possible. The e-app process would both simplify new business and ensure submissions meet as many of the regulatory requirements as possible. This would enhance supervision as well as consumer protection by requiring certain regulatory criteria to be met before allowing electronic submission. Bob Ferguson - Executive Director CAILBA-Canadian Association of Independent Life Brokerage Agencies

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24 30 Eglinton Avenue West, Suite 306 Mississauga ON L5R 3E7 Tel: (905) Website: February 14, 2014 Carolyn Rogers, Chair Canadian Council of Insurance Regulators CCIR Secretariat 5160 Yonge St., P.O. Box 85 Toronto ON M2N 6L9 Submitted by Dear Ms. Rogers: Subject: CCIR Strategic Plan Independent Financial Brokers of Canada (IFB) welcomes the opportunity to provide the CCIR with input to the development of its Strategic Plan. IFB is committed to working with financial services regulators, like the CCIR, as opportunities arise, so that we may share our perspective on how the industry might be improved for consumers and intermediaries alike. The CCIR provides a valuable forum for multiple provincial/territorial insurance regulators to discuss issues of national and international importance that affect the industry, and to ensure that Canadian policyholders and market participants operate in a uniformly regulated industry, regardless of their geographical location. We appreciate the consultative and collaborative approach taken by individual provincial/territorial insurance regulators and the CCIR in working with industry stakeholders, and we look forward to continuing to build upon this positive foundation. You have asked us to comment on 3 questions. We will do so below. Since the majority of our members are licensed to provide advice and product recommendations related to life/health insurance, our comments will focus on this sector of the industry. 1. What are the challenges facing the insurance industry? i) Regulatory harmonization

25 IFB INPUT TO CCIR STRATEGIC PLAN IFB encourages the CCIR to continue to seek opportunities to harmonize and streamline regulations and regulatory practices. Many IFB members are licensed in multiple jurisdictions and, while advancements have been made to reduce inter-provincial barriers, impediments still exist. For example, continuing education and errors and omissions insurance requirements vary by province, with some provinces having no requirements at all. Errors and omissions insurance is an important consumer protection tool, whereby clients who are financially harmed either by error or inappropriate advice can seek restitution without recourse to the courts saving them time and money. Similarly, some provinces have put exemptions in place for life insurance agents who hold other types of designations, while others have restricted the types of CE that is accredited for licensing purposes. Our concern with both of these situations is that advisors may not get exposure to relevant subject matter that will enable them to provide high quality advice and suitable product recommendations to clients. For example, other designations may not focus on life insurance products and, therefore, be less instructive. ii) An aging population presents industry challenges Just as it is within the population at large, it is an ongoing concern within the life insurance industry that the average age of agents and brokers is increasing. IFB sees this trend within its own membership. An aging broker population combined with a lack of new entrants to the financial services business is creating pressure on the industry. As an association, IFB is looking at ways to support members in succession planning and in promoting the financial services as an attractive career option. Similarly, and as mentioned in our verbal remarks to the CCIR, IFB is concerned about the challenges that an aging clientele present to advisors, and the unique risks of providing advice to senior clients. We recognize that all consumers are treated equally under the various provincial Insurance Acts, however, consumers and brokers alike can benefit from steps that will reduce the likelihood of error or financial mistakes that can be particularly devastating for older people. Advisors need to be equipped to provide suitable advice for those in the de-accumulation stage of life, where the needs can be quite different. Risks for brokers dealing with older clients include being drawn into family disputes where they must advocate for their client, and recognizing the signs of failing mental capacity. We believe targeted training on these issues should be provided through ongoing CE and in the LLQP, as new entrants may acquire older clients through new business or the purchase of a retiring broker s book of business. IFB would be pleased to provide the CCIR with further information on this. Page 2 of 4

26 IFB INPUT TO CCIR STRATEGIC PLAN iii) Regulatory overlap IFB continues to be concerned about the intrusion of securities regulation into insurance. As you know, securities regulators are considering a ban on embedded fees and trailing commissions, as well as introducing a statutory best interest or fiduciary duty for retail brokers selling mutual funds. This debate is of great interest to IFB as the majority of its members are dual-licensed to sell life insurance and mutual funds. If the CSA goes forward with this initiative, or as some suggest - the Ontario Securities Commission proceeds with implementation on its own, the practical impacts for our members and their clients are significant. We encourage the CCIR to work with the CSA, Joint Forum and Ministers of Finance to ensure workable solutions are found, especially for dual-licensed advisors and their clients. 2. In your view, what do you see CCIR doing to deal with those challenges? i) Regulatory harmonization As mentioned above, lack of provincial/territorial harmonization creates additional compliance and cost for our members. It is our hope that the CCIR will work toward reducing the regulatory burden on participants. In addition, many of our members are dual-licensed which permits them to offer mutual funds or other securities-related products. We continue to be concerned about the intrusion of securities regulation into the activities these members engage in as life insurance licensees. ii) Changing demographics The insurance industry is faced with finding ways to engage younger people and other potential new entrants to the advisory channel. The personal advice provided by brokers, like our members, is central to many Canadians acquiring the life and health insurance coverage they need to secure their family s long-term financial stability in the event of death or disability. Many people will not seek out coverage on their own, thus leaving themselves or their families at risk if a death or disability occurs. In view of this, we trust the CCIR will be mindful not to create barriers that could make this industry appear less attractive to new entrants. iii) Regulatory overlap As per above, IFB encourages the CCIR to work with the CSA, Joint Forum and Ministers of Finance to ensure workable solutions are found, especially for dual-licensed advisors and their clients, and to prevent regulatory arbitrage. 3. What specific initiatives should CCIR continue or undertake over the next three years? i) Financial literacy IFB believes regulators are well-positioned to assist in ensuring consumers have confidence in the Canadian financial services marketplace. Financial literacy is the key to reducing a consumer s risk of becoming a victim of financial fraud, as well to help them better judge whether the advice they receive is appropriate and competent. Informed consumers are better able to recognize red flags, and assess potential risks in the financial marketplace. IFB has a Consumer Section on its website which provides links and general financial information on a number of topics. It emphasizes the importance of dealing with an advisor who is regulated, and how to check an advisor s registration and disciplinary history. Page 3 of 4

27 IFB INPUT TO CCIR STRATEGIC PLAN IFB welcomed the announcement regarding the Canadian Insurance Regulators Disciplinary Actions website and we view its searchable licensing links as useful and accessible tools for consumers. We also see a role for government and regulatory bodies, like the CCIR, to supplement existing digitally-based financial literacy information by undertaking an active print and media campaign. Many investors, especially older Canadians, do not rely on the internet for their information. A campaign using radio, television and newspapers would be an effective adjunct to the digital and web-based approach to consumer education, and be seen to come from a non-partisan source. We note that regulators in BC have been running a series of television ads to combat fraud especially aimed at seniors, and would like to see similar initiatives more widely available in Canada. ii) Stakeholder engagement We think the roundtable discussion format employed by the CCIR is helpful in that it offers informal opportunities for stakeholders, like ourselves, to share information and industry insight. We encourage the CCIR to continue with this approach. IFB supports the CCIR s involvement with international initiatives and organizations, such as the International Association of Insurance Supervisors. This ensures that Canada contributes to the development of sound global practices and regulatory standards, and Canadian regulation remains at the forefront of the industry. iii) Review of Third Party Administrators We note that a review of TPAs has been on the CCIR s agenda and we are interested in seeing this move forward. It is our understanding, through comments provided by our errors and omissions insurance provider, that a gap in consumer protection exists in certain instances, and that this gap can be much greater when the TPA is involved in claims adjudication. Should the CCIR wish further information on our observations, we would be pleased to provide it. Thank you for the opportunity to provide our comments. We look forward to continuing to consult with the CCIR on issues affecting our members and to receiving the new Strategic Plan when it is finalized. If we can be of further assistance in this matter, please contact me or Susan Allemang, Director Policy & Regulatory Affairs ( sallemang@ifbc.ca). Yours truly, Nancy Allan Executive Director Tel: (905) allan@ifbc.ca Page 4 of 4

28 February 14, 2014 Carolyn Rogers, Chair, Canadian Council of Insurance Regulators 5160 Yonge St, P.O. Box 85 Toronto, ON M2N 6L9 Dear Ms. Rogers, I am writing to provide our thoughts on CCIR s strategic plan. PACICC s interest in the CCIR s strategic plan relates directly to our consumer protection obligations as the P&C insurance industry s designated compensation corporation. Our interest is well-illustrated by the observation that insurance companies occasionally fail. In the past 30 years, 32 insurance companies have been ordered into wind-up. Further, the financial crisis has highlighted the importance of an appropriate solvency framework and coordination among supervisory authorities. We offer our comments on several issues, yet our primary comments and recommendations relate to the central themes of incorporating solvency coordination and solvency resource pooling into the CCIR s strategic priorities. Many risks to the solvency of insurance companies are homogenous across jurisdictions. As a result, there is the potential for extensive benefits in coordination and the pooling of resources, in terms of both policy responses and in supporting provincial examiners in their frontline supervisory role. In particular PACICC recommends including the following specific initiatives and activities in the CCIR s strategic priorities: 1. Implement changes recommended by International Monetary Fund Financial Sector Assessment Program Report. 2. Focus the Solvency Working Group on strengthening the role of actuaries. 3. Improve preparedness for the next insolvency. 4. Harmonize provincial solvency frameworks, where possible. 5. Preparing for a major urban earthquake.

29 6. Support solvency research. PACICC s attached submission provides a high level brief on each of these recommendations. We trust that these suggestions are helpful in your review of CCIR s strategic plan. If there are any further questions or information that we can provide, please do not hesitate to contact us. Best regards, Paul Kovacs President & CEO cc: Jim Scalena, Chair, PACICC/Assuris Standing Committee

30 A response to the Canadian Council of Insurance Regulators strategic plan consultation February 2014

31 PACICC s mission and principles Mission Statement The mission of the Property and Casualty Insurance Compensation Corporation is to protect eligible policyholders from undue financial loss in the event that a member insurer becomes insolvent. We work to minimize the costs of insurer insolvencies and seek to maintain a high level of consumer and business confidence in Canada s property and casualty insurance industry through the financial protection we provide to policyholders. Principles In the unlikely event that an insurance company becomes insolvent, policyholders should be protected from undue financial loss through prompt payment of covered claims. Financial preparedness is fundamental to PACICC s successful management support of insurance company liquidations, requiring both adequate financial capacity and prudently managed compensation funds. Good corporate governance, well-informed stakeholders and costeffective delivery of member services are foundations for success. Frequent and open consultations with members, regulators, liquidators and other stakeholders will strengthen PACICC s performance. In-depth P&C insurance industry knowledge based on applied research and analysis is essential for effective monitoring of insolvency risk.

32 Introduction The Property and Casualty Insurance Compensation Corporation (PACICC) protects insurance consumers across Canada from undue loss in the event that a member insurance company fails. PACICC was established in 1989 in consultation with federal, provincial and territorial insurance regulators. The organization is a nonprofit corporation that is funded by member property and casualty insurance companies. Membership in PACICC is mandatory for all P&C insurers in Canada who are licensed to underwrite the main lines of insurance that we cover including personal and commercial automobile and property insurance, as well as commercial general liability insurance. During its 20-year history, PACICC has provided protection for a quarter of a million policyholders and paid approximately $168 million dollars in compensation for damage claims and refunds of unearned premiums to policyholders, in Canada, whose insurers became insolvent. The Canadian Council of Insurance Regulators (CCIR) has asked stakeholders for their views on its strategic plan. To facilitate the process, it also posed a series of three questions related to helping identify key issues and activities to support a strategic focus for the CCIR over the next few years. PACICC s interest in the CCIR s strategic plan relates directly to our consumer protection obligations as the P&C insurance industry s designated compensation corporation. In this submission, PACICC reviews the CCIR mandate and the questions posed, offering some observations and recommendations that could advance the CCIR s role of consumer protection. While this CCIR s mandate does not specifically highlight the central role that supervisory authorities play in supporting confidence in the industry, PACICC believes that the new Solvency Forum provides CCIR with a tool to strengthen prudential supervision of insurance companies. PACICC s comments and observations solely reflect the prudential supervisory aspect of the CCIR s mandate and the role that it can play in supporting confidence and stability. 1

33 Challenges facing Canada s P&C insurance industry Since PACICC was established in 1989, the Corporation has required funds from members for the failure of a P&C insurance company in 12 of its 24 years in operation. For member insurers, the likelihood of an insolvency assessment in any given year is significant. PACICC s examination of the last 35 insurer failures in Canada found that inadequate pricing and reserving of the insurance product was the major cause of insolvency in almost every case. This experience is consistent with all major insurance markets across the world. Therefore, the most significant solvency challenge facing insurers operating in Canada is to maintain adequacy of prices and to reserve appropriately for expected future claims. Canada U.S. EU Asia* Leading cause of insolvency 1. inadequate pricing/deficient loss reserves inadequate pricing/deficient loss reserves inadequate pricing/deficient loss reserves inadequate pricing/deficient loss reserves 2. parent company failure Fraud asset risk asset risk 3. rapid growth significant change of business failed systems concentration # of insolvent companies Source PACICC (2008) A.M. Best (2004) FSA (2002) Chen & Wong (2004) * countries included in this study are Japan, Singapore, Malaysia and Taiwan Developing problems in property insurance markets Traditionally homeowners and commercial insurance markets in Canada have been healthy products, with associated solvency risks being low. Property insurance has provided a secure source of capital for insurers. However, presently there are several homeowners insurance markets across Canada where claims costs are higher than 70 percent per premium dollar collected. At current interest rates, these markets would be unprofitable for insurers and represent a drain on capital. It is not uncommon for any single province or territory to experience a bad year. However, PACICC s analysis finds 2

34 that some provinces and territories have had five bad years in a row and that may suggest deeper problems in the marketplace. Interprovincial differences in homeowners claims paid have been driven by more large storms causing damage in the Prairies and in Atlantic Canada. In Alberta, the average loss ratio for homeowners Personal Property loss ra os insurance for the past five years 5 year average has been percent. In 150% Loss ra os above 70% Saskatchewan, the ratio is % percent. In New Brunswick, the loss ratio over the past five years is 50% 83.0 percent. 0% Results are similar in the N&L PEI NS NB QC ON MB SK AB BC YK NWT NU commercial property marketplace. In Alberta, the five-year loss ratio for commercial property is 92.2 percent. In Nova Scotia, it is 78.1 percent. In Newfoundland and Labrador, it is 76.0 percent. These sustained high loss ratios are eroding the capital base of insurers operating primarily in these markets. A significant factor in these poor underwriting results is the impact of increasingly frequent and severe natural catastrophes. In 2013, Canada experienced more than $3.2 billion in catastrophe losses across the country. This is the most costly year in Canadian insurance industry history. And it is the fifth straight year in which weather-related losses have exceeded $1 billion. Large catastrophic losses are no longer unusual. It is clear to PACICC that property insurance is changing with weather-related (water and wind) claims costs increasing as a proportion of total property claims. The problem is not that catastrophic losses occur; rather, it is that insurers are not accurately assessing and measuring the costs associated with severe weather risks. PACICC 3

35 believes that most insurers have the tools and expertise to remain solvent in the face of increasingly frequent and severe weather catastrophes by using both pricing and reinsurance strategies to manage the risk and to maintain their claims-paying capacity. In particular, we recognize efforts within the industry to better understand and manage this risk through work underway at the Institute for Catastrophic Loss Reduction, Insurance Bureau of Canada, Canadian Institute of Actuaries and elsewhere. Continued uncertainty in Ontario auto insurance Ontario auto insurance makes up approximately 25 percent Auto loss ra os of Canada s P&C insurance market. There is uncertainty about whether insurers have legal clarity to price and deliver this product. In 2010, the Ontario government enacted auto insurance reforms that have dramatically changed the product. While these reforms have had a positive effect and reduced claims costs, the Government has mandated an additional 15 percent reduction in premiums over the next two years, with little reform to reduce costs within the system. It is clear that Ontario drivers pay high premiums for auto insurance. With the strict prior approval system of rate regulation, the Government could force insurers to reduce rates. This continuing uncertainty makes it difficult for insurers to price and reserve the Ontario auto insurance product. Changes associated with Ontario auto have resulted in insolvencies in the past and remain a concern to PACICC. A decade since the last insolvency It has been a decade since a Canadian P&C insurer failed and was put into 4

36 Presentation to CCIR/CISRO Presentation on the Strategic Plan February 12, 2014

37 INTRODUCTION The Third Party Administrators Association of Canada (TPAAC) is made up of third party administrators that provide group and in some cases individual administration services on group and individual insurance products throughout Canada. In addition, some TPAs provide consulting services to individual employers, associations and individuals on insurance matters. The Third Party Administrators Association of Canada (TPAAC) wishes to submit this information in response to Carolyn Rogers January 30, 2014 letter to stakeholders, Re: CCIR Strategic Plan STRATEGIC PLANNING OPPORTUNITIES We understand the CCIR is seeking input on the following: 1) What are the challenges facing the insurance industry? 2) What do you see the CCIR doing to deal with those challenges? 3) What specific initiatives should the CCIR continue or undertake over the next three years? The focus of our answers is to ensure best practices in the delivery of services to the end purchasers, and to serve the public interest. We hope to answer these questions in ways that are applicable to both the insurance industry broadly, and the TPA market specifically. What are the challenges facing the insurance industry? The insurance industry is a vibrant, diverse and constantly changing industry. As such, we expect there will be a number of challenges in the next three years. These include: Information Technology The rate of change in information technology is rapid and we expect it to continue into the foreseeable future. Technological advances have led to an explosion of data. In the insurance industry, much of this data is personal and subject to privacy. With the growth of mobile, social media and online cloud activity, this data is stored and accessible in more places than ever before. It will become increasingly costly and complex to manage data in a way that will meet and exceed the needs and expectations of the consumer. Third Party Administrators Association of Canada (TPAAC) 2 Presentation to CCIR/CISRO February 12, Strategic Plan

38 Two examples of the challenges that exist in the electronic environment in insurance are digital signatures for beneficiary designation and electronic claims submissions. Are there adequate safeguards to protect employees and individuals that either establish an initial beneficiary or change an existing beneficiary, to ensure there is no coercion? Does electronic submission of claims by employees without documentation ensure proper protection of both employers and employees through the current audit systems, etc? Sustainability of Employee Benefit Plans The cost of employee benefit programs continue to rise at a rate that is higher than inflation. We expect this to continue for a number of reasons, including demographic changes in the Canadian population and higher cost drivers, especially prescription drugs. In the short term, the upward pressure from demographic changes and incremental cost of these new medicines will be offset in part by generic pricing reform and brand patent loss. Nevertheless, cost sustainability in the long term is vital to protect the consumer and serve the public interest by ensuring access to affordable insurance products while at the same time ensuring the insurance industry remains financially sustainable. Disintermediation and Consumer-centric Service Increases in business costs, healthcare costs and market competition will put pressure on organizations to look for new ways to grow revenue. This combined with changes in technology, will continue to put pressure on the traditional channels of distribution. The challenges that may arise from these changes could include: (i) searching for distribution through unlicensed intermediaries (this is currently a significant issue); (ii) designing products with the supplier or producer in mind, rather than the best interests of the purchaser or consumer, or (iii) distributing complex products to self-directed consumers with no relationship building. It is our opinion that this does not serve the public interest. The key, in our opinion, will be to balance consumer choice around access to products and services with access to accurate and transparent advice. What do you see the CCIR doing to deal with those challenges? TPAAC supports the CCIR Mandate, Mission and Vision, as well as the risk based approach to market conduct regulation and believe that these will help the CCIR address the challenges facing the insurance industry. Third Party Administrators Association of Canada (TPAAC) 3 Presentation to CCIR/CISRO February 12, Strategic Plan

39 TPAAC would encourage the CCIR to continue to promote an efficient private sector marketplace as outlined in the Strategic Plan These efficiencies will help with operating costs, long-term sustainability, and ultimately provide consumers with effective coverage. TPAAC also encourages the CCIR to continue to enhance stakeholder engagement. Dealing with these challenges we have outlined will require interacting and working with a number of stakeholders to raise the bar for consumers. Seeking stakeholders input, as evidenced here, is an important part of the process. What specific initiatives should the CCIR continue or undertake over the next three years? The initiative to promote an efficient private sector marketplace outlined in the Strategic Plan sought, to the extent possible, to develop and implement intermediary registration and enforcement database. There is currently no intermediary registration process specific or unique to the TPA provider market. TPAAC would like to work with the CCIR s Agencies Regulations Committee and other stakeholders during their review of possible TPA regulation with the goal to develop a TPA registry and set minimum standards for the industry and be accessible to consumers. TPAAC has already established a broad platform for best practices, which we believe incorporates the CCIR s Principles for Managing Conflicts of Interest, as well as a code of conduct, and strong criteria for membership. To this end, TPA s would be easily identified and any future regulatory initiatives to deal with industry challenges that directly or indirectly impact the TPA industry specifically could be easily implemented, communicated and enforced amongst TPA s. Thank you for this opportunity to provide our ideas for the CCIR Strategic Plan. Respectfully submitted, Mike McClenahan President Third Party Administrators Association of Canada (TPAAC) 4 Presentation to CCIR/CISRO February 12, Strategic Plan