July 21, 2017 11:31
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The contest of sales, bonuses, commissions, contingency, the clubs exclusive, and the assignment of a title are incentives that pose a high risk of conflicts of interest, » says thefinancial markets Authority in a discussion paper released yesterday.
The report classifies the various types of remuneration and incentives according to the risk of conflicts of interest associated with them. Thus, the salary, and the fees and service charges are considered to pose a low risk of conflicts of interest, while the initial commissions, leveled, follow-up and renewal pose a medium risk.
The contest of sales, encourage representatives to focus their production
The Authority notes that the competition sales are often related to the sale of a product or a particular product category or to the performance of the representative, making sure that it could be attempted to concentrate its production in one place in order to increase his chances to win a trip or prizes.
The report also highlights the study conducted by thecanadian Association of insurance companies of persons (CLHIA) in 2016, which states that » in situations where advisors have the choice between different insurers, the incentives, in the form of congress could contribute to the perception of conflicts of interest.»
The Authority notes that since the publication of this report, some insurers have announced the termination of sales contests involving travel and congress. The regulator adds that a » comprehensive risk assessment related to the set of incentives must continue «.
Bonuses promote the prioritization of products of an insurer
The fact that the bonus is directly related to premium volume and a performance threshold force the Authority to assess this incentive as posing a high risk of conflicts of interest.
The regulator cites the example programs of participation in profits, such as commissions, contingency. These have » often difficult targets to achieve. They can influence an intermediary for the choice of products or of the insurer to provide to a client. They offer substantial amounts of money, » says the regulator.
Consultation of the stakeholders of the industry
In order to continue its work in the field of incentives and observe the measures in place or recommended, the Authority launches a consultation of the different stakeholders of the insurance industry. They are invited to respond to a series of 17 questions on the categories of incentives and how they are applied in different modes of distribution. The persons interested to make known their views are invited to do so before the 15 October 2017.
In addition, the members of the canadian Council of regulators of insurance (CCIR) interested to know if the findings presented in this paper may differ from the other provinces, in connection with the supervisory Framework of the concerted conduct on the market in Canada.
This reflection document is part of the process of implementation of the guideline on sound business practices initiated by the Authority in 2013. It is based on the self-assessment submitted to 219 insurers who hold a license to practice in Québec.