IFB responds to CISRO consultation on revised LIRD document

IFB responds to CISRO consultation on revised LIRD document

March 23, 2023 

CISRO Secretariat 
25 Sheppard Avenue West 
Box 21 - Suite 100 
Toronto ON M2N 6S6 

Submitted by E-mail: cisro-ocra@fsrao.ca 

Subject: CISRO consultation on draft Life Insurance Replacement Declaration (LIRD) 

Independent Financial Brokers of Canada (IFB) appreciates the opportunity to comment on the prototype LIRD that has been developed by CISRO.  

IFB is a national, not for profit association representing approximately 3,000 licensed financial professionals who have chosen to conduct business in the independent distribution channel. The majority of IFB members are life/health insurance licensees. Many are also mutual fund registrants and/or hold other licenses or designations, so they can better address the broader financial needs of their clients.   

Our comments 

IFB supports the CISRO Working Group’s goal of improving upon the current LIRD to better align the interests of consumers and expectations on intermediaries, arising from the CISRO/CCIR Guidance on Conduct of Insurance Business and Fair Treatment of Customers, and the CISRO Principles of Conduct for Insurance Intermediaries.  

Consumers should be provided with enough information, so they can make an informed decision on whether a proposed replacement of insurance is right for them.  An important part of this, is the role the life licensee has in guiding the client throughout the process by helping them to understand the available options, and the advantages and disadvantages of the replacement. Clients should also know that they can reject a purchase within a defined time period if they change their mind.

Our specific comments on the prototype are as follows: 

The current LIRD has been in place since 2008. It’s important that revisions to the LIRD will achieve the goals of the Working Group. We appreciate that CISRO has included stakeholders in the consultation process.  However, in addition, we suggest that regulators provide stakeholders with information related to the number and types of consumer complaints related to the replacement of life insurance.  This kind of information would help focus the review on the appropriate desired outcomes, ensure any new approach meets the CISRO/CCIR objectives related to the FTC and CISRO Principles of Conduct, as well as address gaps in the current processes or identify the need for more advisor training. 

Regulatory harmonization is an important goal as many advisors and insurers conduct business with clients in multiple jurisdictions. We acknowledge that it is likely to take some time for the revised LIRD to be adopted by jurisdictions outside of Quebec.  

The prototype LIRD is very similar to the ‘Notice of Replacement of Insurance of Persons Contract” in use in Quebec, although we have noted some minor variations that in general, we agree with.  For example, we agree that requiring the agent to initial the incontestability and suicide clauses attesting that they have explained each of these to the applicant will help to ensure these important discussions take place. Although the AMF Notice requires the client to initial each page, the prototype requires both the agent and client to initial each page.  This will help to focus the agent and the client on the importance of the content contained on each page. 

The current review of the LIRD presents an excellent opportunity for the Working Group to support harmonized delivery requirements for the revised LIRD. The delivery requirements for the current LIRD and accompanying written explanation are unduly complicated by the current jurisdictional differences.  In most jurisdictions, the agent must use the LIRD, but in some they have the option to use the LIRD or former Basic Disclosure Form.  While most jurisdictions require the client to receive the LIRD and written explanation, only a few require the documents to be provided to the new insurer, or to both the new and existing insurer, in addition to the client.  To deal with these anomalies, some insurers require the LIRD and explanation to be provided alongside the policy application, regardless of the local rule.  IFB encourages regulators to streamline these requirements.  

Our review of the prototype is hampered by the fact that only the form is available to us, and not the accompanying documents that are intended to assist clients and agents in explaining the replacement of insurance. Reviewing these documents alongside the form would have provided us with a better perspective as to the messaging and/or cautions that regulators want to accompany any discussion of the replacement of insurance and may have helped us identify potential gaps in the form itself. 

While most life insurance replacements would involve an agent, there can be instances where the insurance transaction does not include advice or a recommendation from a licensed life insurance agent.  Any updated measures should describe the regulatory expectations when a life insurance contract is being replaced and there is no individual, licensed agent involved.   

As an example, B.C.’s Financial Institutions Act, Insurance Contracts (Life Insurance Replacement) Regulation contemplates this situation: 

Duties of life insurer 

4(1) A life insurer who is replacing a contract of life insurance must comply with the duties imposed on life insurance agent licensees under section 3 (2) to (5) if there is no life insurance agent licensee involved in replacing the contract. 

IFB suggests that updated guidance should address the regulatory expectations for insurers if a replacement of a policy is conducted direct to the client, or through a digital distribution channel where no advice is provided. 

In today’s business environment, client meetings may be held virtually. Clients and advisors need the flexibility to be able to accommodate e-signatures. As well, the form should be flexible enough that it can be produced with additional pages as required, and the size of each of the boxes should be adjustable based on the information required. 

Below are some additional suggestions, and we have attached a copy of the prototype form with our specific comments inserted. 

1. The revised LIRD has been expanded to apply to both life and health insurance policies. We see this as a positive, modernized approach, as there can be implications on replacement for consumers with critical illness and disability policies as well.
   
   In view of this, the LIRD may be better titled to reflect this broader scope and reduce confusion for agents and consumers about its application.  Alternatively, there could be 2 versions of the form – one life and one health - which may make the form shorter and less complex for advisors and consumers, as well as making it obvious the type of policy being replaced.  It would allow the implications of the incontestability and suicide clauses to better reflect their applicability to life as opposed to critical illness and disability policies. 
2. IFB recommends adding a revision date at the bottom of each page.  This helps to make clear if the appropriate form is being used. 
3. We recommend leaving space for the agent to indicate if s/he recommends the replacement or is following the client instructions only. 

Thank you for the opportunity to comment on the prototype LIRD.  Please contact the undersigned, or Susan Allemang, Director Policy & Regulatory Affairs (sallemang@ifbc.ca) should you have any questions or require further information. 

Yours truly,

Nancy Allan
Executive Director
T: 905.279.2727 Ext. 102
E: allan@ifbc.ca

www.ifbc.ca