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The combination of insurance and technology presents a way for intermediaries and insurers to reinvent how they do business. With the industry now on the brink 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 the insurance industry in Canada, including:
- How insurance is regulated
- The adoption of insurtech in Canada
- How Technologies Affect FTC Plans
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Brigitte Goulard (00:06): Jill, why don’t you tell us a little about the success of insurtech in Canada? Has it been very successful?
Jill McCutcheon (00:13): So that’s a good question because we certainly 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 purchase, to administration, to termination, to claims. However, I would say that at least in the context of purchasing insurance, probably less than 2% of transactions are done digitally or online. So the recording has been a bit slow. But of course it is very important for the future of participants in the insurance industry that they have a foot in the door with insurtech.
Jill McCutcheon (00:59): Part of the reason it has been slow is that we have many different regulators in Canada for insurance. We actually have 17 of them. And there are many 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 country, which they can’t always achieve. So an example would be… Brigitte, you have a car accident on the side of the road, you are asked for proof of insurance, and in some provinces you can show the proof on your phone, but in other provinces you couldn’t. Some provinces do not allow electronic proof of insurance.
Brigitte Goulard (01:51): It must be frustrating for companies you’re dealing with that operate across Canada and have a patchwork of what can be done. Does that mean they just abandon the idea until it spreads throughout the provinces? Or do they do the patchwork?
Jill McCutcheon (02:08): So that’s actually a good question, because in Ontario it’s a patchwork. There is no doubt. And it’s frustrating because we have a lot of foreign insurance intermediaries and companies, or fintech firms coming to invest in what is otherwise seen as an attractive market. And then you run into these little rule differences in each and every jurisdiction, which greatly make the architecture of these insurtech solutions more challenging. But interestingly, in Ontario we have a regulatory sandbox like the FSRA [Financial Services Regulatory Authority of Ontario] works with, so the FSRA has the power to grant you exemptions from certain provisions of the Insurance Act, such as the requirement to be licensed, right? As an insurance intermediary, they can waive this provision to allow you to test your insurtech solution. So they are actually looking for people to use the sandbox. So if you know of anyone in the insurtech space, anyone who needs to try something 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 talk 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 come together in two forums, the Canadian Council of Insurance Regulators and CISRO [Canadian Insurance Services Regulatory Organizations], which is the advice you referred to, which deals with the licensing of intermediaries. And what happened when CISRO came together, I think what you’re referring to, they agreed on a group of principles called “fair treatment of customers”. The long and short of it is that the product must fit throughout the product’s lifetime with the customer, not just at the point of sale, and that the product functions must be clearly described. I mean, these principles all come from IAIS Core Principle 19 around Fair Treatment of Customers, and that has been picked up in Canada. And compliance people really like to talk about the FTC. They just call the Fair Treatment of Customers, “FTC”. The thing about it is that it’s a bit difficult for lawyers because they are very high principles and they are not necessarily set out in a law or a regulation or a rule. So sometimes it becomes a bit difficult to tell if you are in compliance with these principles, and frankly if you need to follow these principles from head to toe. And so CISRO, who are the ones who regulate the intermediaries, have gone further to adopt a code of ethics for insurance intermediaries. And that is really the logical extension of the principles of fair treatment of customers in the case of intermediaries. So there are two provinces that have kind of taken it to the next level. So, Québec has the Code of Commercial Practice, which is incorporated into legislation and largely adopts the principles of fair treatment of customers. So always a good place to go, the trade practices code just because it’s a little more clear if you look at that code and then British Columbia is going to adopt something in a rule. And then we will have something a little more concrete when these things are completed.
Brigitte Goulard (05:54): And how are these rules transferred to insurtech? As fair treatment of customers, as you say, is very high and basically touches any type of interaction you may have with your customers.
Jill McCutcheon (06:08): Insurtech, I believe, represents an opportunity for intermediaries and insurers to make the 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 manage claims in a more transparent way, which my personal belief is that technology certainly provides a solution. So a very 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. In the past, an adjuster came, looked at your car, you know, made you sign a certificate of loss, and then you waited to hear the next step, which could be weeks and weeks. And so insurtech, I think, is certainly a way to take that to the next level in terms of transparency with our customers, which is a core part of the FTC principles.
Brigitte Goulard (07:15): So it’s probably very good for the customers. It must also be good for the insurance company because they can get a better process. But is it good when it’s a problem from a legal perspective, like isn’t there more documentation that you have to go through or other rules? What is the impact of eg regtech for lawyers?
Jill McCutcheon (07:39): Well actually, I’ll probably rephrase your question. So what’s happening with respect to Fair Treatment of Customers, which is related to insurtech, is that there’s an investigation that the AMF is leading on behalf of CCIR, the Canadian Council of Insurance Regulators, and they’re asking a lot of questions about how Fair Treatment of Customers- principles are integrated into everything you do, including certainly your technology solutions. But in these questions you can see that they want insurance companies 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 (8:20am): And then it’s related to insurtech because of course that’s how insurers and intermediaries will take their customer service to the next level. But a public commitment to these high principles I think poses a risk, because there will always be someone who thinks you didn’t quite meet that standard. There can be a reason for a class action, there can be many reasons. But I think the industry’s response has been to say, look, we have the principles of fair treatment of customers embedded in everything we do, in our producer codes of conduct, in our business code of conduct, in our conflict of interest code. , you know, in our complaint handling procedures. So we do not need a separate public commitment.
Brigitte Goulard (09:13): In the beginning, when we started talking, you said how little it has been used, and most of it is because it is a patchwork. So how long do you think it will take before we actually see real progress? That we can see that things happen on a scale, where it is scalable that local communities can use it?
Jill McCutcheon (09:31): Yeah, I mean, I think it starts out slow in terms of how many people actually buy over the internet, but it’s a lot faster in certain other areas on the backend, like around administration because it’s a given that an insurance company will save money if they can do damage process more efficiently, and they have control over that process, right? I mean, a lot of insurance companies are middleman driven, and they don’t have control over the sales process. It’s going to take off, there’s no doubt it’s going to be revolutionary in the next 10 years. Over the next 10 years, certain technological developments will help accelerate this. I think it’s a given that it will happen. I just can’t tell you if it’s next week or if it is, 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 is any doubt.
Brigitte Goulard (10:26): Yes. And you are right there! To help them revolutionize.
Jill McCutcheon (10:30 a.m.): Oh, absolutely. Yes, we love it.
