Unfair or Deceptive Acts or Practices (“UDAP”) Rule consultation summary report

Several stakeholders raised concerns or sought clarity about responsibility for committing a UDAP under s. 1(4) of the Second Proposed Rule insofar as it extends to, “every director, officer, employee or legal representative.” 

Various stakeholders expressed concerns that the Second Proposed Rule would cast too wide a net of culpability, including making persons with limited or no control responsible for committing a UDAP. It was noted that it is unreasonable to expect every individual employee or authorized representative to understand all aspects of the Second Proposed Rule, and that if an insurer is found to have committed a UDAP, the insurer should take responsibility, and not the employee.

Some stakeholders expressed concerns regarding the definition of Unfair Discrimination in s. 1(1)(xii) of the Second Proposed Rule and suggested that the Second Proposed Rule adopt the definition of Unfair Discrimination in the Ontario Human Rights Code (“OHRC”).

The Second Proposed Rule maintains the use of the word ‘persons’ to enhance consumer protection. The proposed language is intended, in part, to prevent persons from escaping liability for committing a UDAP by deflecting responsibility to employees or otherwise hiding behind a corporate structure.

In FSRA’s view, a highly regulated sector like insurance should be held to a high standard according to which:

• persons are aware and knowledgeable of their obligations and responsibilities, and take measures to ensure that consumers are not inadvertently harmed, whether by intent or negligence
• negligence or ignorance of the law does not excuse an actor from having committed a UDAP

The Second Proposed Rule is intended to provide FSRA with the discretion to determine whether a UDAP has occurred upon a consideration of all relevant matters. When determining enforcement activities, FSRA’s conduct investigations may consider whether insurers and market participants took reasonable steps to avoid a UDAP and whether they were aware that a practice was a UDAP.  FSRA does not intend to seek to enforce against persons not involved in a UDAP, either directly or by virtue of their responsibilities and duties as an employee/officer or licensee.  Any person who feels incorrectly subject to UDAP sanctions or feel that they have been unfairly implicated, will have the benefit of an independent hearing at the Financial Services Tribunal.

FSRA has removed the definition of unfair discrimination in s. 1(1)(xii) and amended s. 4 in order to incorporate the operative portions of the previous definition of unfair discrimination directly into s. 4(1) This amendment fully preserves the substantive intent of unfair discrimination in the Second Proposed Rule. Due to the unique nature of insurance, the OHRC definition of unfair discrimination alone may not fully protect consumers from the harmful outcomes described in s. 4. The Board Approved Rule will allow FSRA to address forms of discrimination which are unreasonable in the context of insurance, rather than just following the OHRC.

A stakeholder expressed concern that there may be unintended disruptions due to the broad nature of the language contained in s. 2(2)(i)(b) of the Second Proposed Rule. The stakeholder specifically noted that the Second Proposed Rule would be applicable to any person, director, officer or employee rather than to events or circumstances.

Some stakeholders sought clarity on whether the Second Proposed Rule would apply to reinsurance.

In s. 2(2)(i)(b) of the Second Proposed Rule, FSRA is preserving the language concerning the “expectation that a benefit be received that is funded…out the proceeds of insurance,” which is currently present in s. 3(1) of the UDAP Regulation. Accordingly, FSRA does not see a source of business disruption associated with preserving the UDAP Regulation’s substantive intent in this regard.

FSRA is maintaining the UDAP Regulation’s substantive intent with respect to reinsurance and consequently, reinsurance contracts remain within the scope of the Second Proposed Rule for all classes of insurance.

A stakeholder expressed concerns that restricting an insurer’s ability to price insurance on a case-by-case basis stifles innovation and competition, which may not be in consumers’ interests.

A stakeholder noted that the concept of “class” of insurance under s. 4 of the Second Proposed Rule may have a different connotation than under s. 43 of the Act.

A stakeholder noted that s. 4(1)(i) of the Second Proposed Rule references life insurance products but does not reference accident and sickness products.

The desired flexibility for high value policies and case-by-case approaches already exists through contracts under the current system. The Second Proposed Rule continues to exclude unfair discrimination, such as between similar risks on the basis of prejudice (e.g., treating two baseball players differently on account of religious beliefs).

S. 43 of the Act permits FSRA’s Chief Executive Officer (“CEO”) to define and determine classes of insurance for the purposes of the Act. Whereas s. 4 of the Second Proposed Rule prohibits discrimination between individuals of the same class. FSRA is preserving the substantive intent of paragraph (2) of s. 1 of the UDAP Regulation, while not adopting a different connotation of “classes of insurance”.

S. 4(1)(i) of the Second Proposed Rule preserves the substantive intent of paragraph (2) of s. 1 of the UDAP Regulation and therefore, does not refer to accident and sickness products.

Some stakeholders expressed concern that s. 5(1)(v) and s. 5(1)(vi) in the Second Proposed Rule could lead to unintended consequences by making it more difficult for insurers to fight claims that appear to be fraudulent. The stakeholder sought clarity that any delay in claims handling does not itself constitute a UDAP.  

A stakeholder expressed concerns that claimants of critical injuries resulting from auto accidents frequently receive unacceptable treatment from doctors, lawyers and other representatives involved during the claims handling process.

A stakeholder noted that data gathering and reporting systems, such as Health Claims for Auto Insurance (“HCAI”), need to be redesigned to enable insurers and FSRA to monitor practices which may have a result that is inequitable or inconsistent with a claimant’s rights under an insurance contract.

A stakeholder expressed concern about the insurer examination process and suggested that further clarity should be provided to improve oversight of the practices of healthcare professionals engaged in the insurance sector, including ensuring adequate education and training of such professionals in particular. 

FSRA acknowledges the complexity and individual client focus involved in the claims handling process. However, the sections referred to in the stakeholders’ submissions have been drafted to deter any unreasonable or unfair resolution or delay in the claims handling process.

 
FSRA has the authority to take action against an insurer and service providers/ professionals that commit a UDAP or otherwise fails to comply with applicable legal requirements. Claimants who believe they are treated unfairly in the claims handling process may report incidents to FSRA for investigation. The FSRA complaints portal is available for this purpose at the following URL: https://www.fsrao.ca/consumers/auto-insurance/how-resolve-auto-insurance-complaint.

Modernization of data reporting systems such as HCAI is being explored by FSRA under other workstreams. Accordingly, the modernization of data reporting systems is beyond the substance and purpose of the Second Proposed Rule.

Imposing requirements on the insurer examination process to provide better oversight for the practices of health care professionals in Ontario’s insurance system is beyond the substance and purpose of the Second Proposed Rule.

A stakeholder suggested that activities listed as UDAP under s. 6(4) of the Second Proposed Rule related to signing forms prior to providing goods or services related to such forms should also be applicable to claimants, who may also be accountable for non-compliance in relation to this provision.

A stakeholder sought clarity regarding s. 6(3) of the Second Proposed Rule, in particular to confirm that creating unreasonable costs associated with providing goods or services to a claimant constitutes a UDAP.

The same stakeholder expressed concern regarding s. 6(4)(i)(a)-(b) of the Second Proposed Rule, which prohibits requiring that claimants sign or asking claimants to sign a form before the goods and services related to such a form have been provided, as under O. Reg. 34/10 - Statutory Accident Benefits Schedule - signing of certain incomplete forms for the purpose of processing claims may be permitted in particular circumstances.

The Second Proposed Rule would apply to everyone engaged in the insurance sector, including claimants. FSRA agrees that there are particular circumstances in which a claimant may commit a UDAP by signing an incomplete form, such as in cases where the claimant is involved in a fraudulent scheme with respect to the insurance. However, s. 2(3) of the Second Proposed Rule preserves the substantive intent of the UDAP Regulation by maintaining the UDAP Regulation’s exemption for lawyers and paralegals.

The Second Proposed Rule is intended to provide FSRA with the discretion to determine whether a UDAP has occurred upon consideration of all relevant matters. When determining enforcement activities, FSRA’s conduct investigations may consider whether insurers and market participants took reasonable steps to avoid a UDAP and whether they were aware that a practice was a UDAP.

Regarding the clarification sought for s. 6(3), FSRA would like to clarify that unreasonable consideration as noted in the provision refers to the cost of providing goods or services; s. 1(1)(xiii) of the Second Proposed Rule defines “unreasonable consideration” as:  an amount being paid or sought for goods or services provided to a claimant that a reasonable person, in the position of the provider of those goods or services, would not charge or seek, or would not expect a reasonable person, who is in the position of the recipient of the goods or services, to accept.

To address stakeholder feedback and upon further review, FSRA has removed s. 6(4)(i)(a)-(b) of the Second Proposed Rule, as the conduct captured by the aforementioned section is sufficiently covered by s. 6(1). In making such an amendment, FSRA is removing duplication in the Second Proposed Rule, rather than altering consumer protections or removing a provision which would otherwise render a particular action or failure to act as a UDAP.  FSRA is also adding the words “or being asked to sign” into s. 6(4), in order to align the wording of s. 6(4) with other subsections in s. 6, which refer to both the conduct and attempted conduct. This amendment fully preserves the substantive intent of s. 6(4).

Life and Health sector stakeholders were supportive of amendments related to the Incentives section in the Second Proposed Rule. Some stakeholders provided suggestions to alter the order of s. 7(1)(v) and s. 7(1)(vi), and to combine s. 7(2) as part of s. 7(1), to keep the automobile insurance related provisions together.

Related to this, two other stakeholders suggested that FSRA include an exemption to allow for cross-selling arrangements that would allow for incentives to be offered when combining other types of insurance products with an insurance product that provides coverages within the classes of life or accident and sickness insurance.  

A stakeholder raised the concern that s. 7(5) of the Second Proposed Rule would allow a “back door” to rebating in the Life and Health sector.

A stakeholder proposed adding the word “also” after the word “Rule” in s. 7(2), in order to clarify the applicability of s. 7(2) to s. 7(1)(i)-(v).

A stakeholder expressed concern that the Second Proposed Rule could lead to an unlevel playing field or anti-competitive advantages, including circumstances that favor large insurers or disadvantage small businesses or brokers.

A P&C sector stakeholder suggested that in order to realize the full potential benefits of offering incentives in the market, insurers should be able to introduce them based on determinations of the company’s competitive marketing purposes and without requirements of prior filing with FSRA.

A stakeholder noted that the Incentivessection in the Second Proposed Rule should be further strengthened by prohibiting insurers to offer any form of incentives associated with its Preferred Provider Networks (“PPN”).

FSRA believes that the order of s. 7(1)(v) and s. 7(1)(vi) in the Second Proposed Rule continues to provide sufficient clarity to industry.

S. 7(1)(v) is intentionally referenced in s. 7(2), as the intent of the Second Proposed Rule is to restrict incentives from being offered when insurance products are bundled for sale with an insurance product which provides coverages within the classes of life or accident and sickness insurance.

S. 7(5) of the Second Proposed Rule is intended to provide clarity to industry about existing practices and methods for reducing the risk insured by contracts. The substantive intent of the UDAP Regulation regarding existing prohibitions against incentives would continue to remain in place for the Life and Health sector.

FSRA has added the word “also” after “rule” into s. 7(2), in order to further clarify that s. 7(1)(i) to s. 7(1)(v) apply to automobile insurance. This amendment does not alter, in any manner whatsoever, the substantive intent of s. 7(2).

The Second Proposed Rule, in alignment with the Approach Guidance provided to the sector during the Covid-19 Pandemic (Auto Insurance – Consumer Relief during A Declared Emergency under the Emergency Management and Civil Protection Act), is not intended to produce an unlevel playing field or enable anti-competitive practices such as tied-selling.

The Second Proposed Rule has been drafted with the intent of continuing to prohibit rebates that are harmful to or go against the interests of consumers. Incentives continue to be prohibited in the case of deliberately misleading and predatory sales practices to encourage the purchase of unsuitable products. The provision on incentives also requires incentives be provided to consumers in a manner that is transparent and clearly communicated to intended recipients.

FSRA expects insurers to report a consumer incentive program to FSRA within a reasonable period of time after implementation. FSRA is currently assessing any further requirements and processes related to offering incentive programs and will communicate any requirements with industry once the assessment is completed.

FSRA appreciates feedback received concerning PPNs, which may be taken up in the broader context of how insurers conduct business with service providers. Accordingly, the aforementioned issue is beyond the substance and purpose of the Second Proposed Rule.  

A stakeholder expressed concern related to the interpretation of the words ‘inappropriate’ and ‘inaccurate’ in connection with providing advice, noting that these terms are subjective and could lead to ambiguity in determining whether a UDAP has occurred. The stakeholder also noted that consideration must be given to situations where advice should have been presented to a client but was not.

A stakeholder expressed concern that s. 8(2) in the Second Proposed Rule creates an overly broad prohibition on any fee other than what has been stipulated in a contract of insurance and suggested replacing this with a provision requiring transparency for fees and charges.

A stakeholder expressed concern that including “inaccuracies” in s. 8(1) of the Second Proposed Rule would capture errors that were made in good faith.

The Second Proposed Rule is intended to support a more effective approach to regulating and provides discretion to FSRA to determine whether a UDAP has occurred upon consideration of all relevant circumstances. The Second Proposed Rule’s shift to outcomes-focused language with “reasonable person” tests and criteria will enable better determination of compliance.

FSRA expects insurers and insurance agents to share accountability for ensuring the fair treatment of consumers, which includes exercising judgment and acting appropriately in cases where the law is subject to interpretation.

With respect to charging a fee other than stipulated in a contract of insurance, this amendment was made in response to a gap identified by stakeholders during the First Comment Period. In order to preserve the substantive intent of paragraph 8 of s. 1 of the UDAP Regulation, s. 8(2) was added to the Second Proposed Rule.

The proposed language of s. 8 partially serves to prevent actors from “burying” important information in bad faith with the intent of misleading consumers and is intended to provide FSRA with the discretion to determine whether misconduct has occurred upon consideration of all relevant circumstances.

Some stakeholders expressed the view that the usage of credit scores leads to more accurate pricing and urged FSRA to remove all prohibitions or restrictions on the use of credit information, both in the Second Proposed Rule and in Regulation 664 under the Act.

Several stakeholders expressed concern about the prohibition against “variance of formal or informal processes,” taking the view that it may prevent flexibility in serving the best interest of clients or legitimate business practices.

Some stakeholders expressed concern about the restrictions in the Second Proposed Rule related to affiliated insurers, in particular the requirement related to offering the lowest rate available to consumers.

Amending the overall legal framework for credit information in auto insurance rating and underwriting is beyond the substance and purpose of the Second Proposed Rule.

Depending upon the specific facts and surrounding circumstances, variance of formal or informal processes which are not undertaken for the purposes of discouraging or delaying a person from applying for, renewing, or obtaining auto insurance will not be considered a UDAP. As s. 9 of the Second Proposed Rule is qualified by unfair treatment, FSRA does not see a reason to make further amendments. Also, the Financial Services Commission of Ontario’s (FSCO’s) 2009 bulletin and FSRA’s interpretation of s. 237 and s. 238 of the Insurance Act, which establish the Take-All-Comers Rule, are consistent with this particular section in the Second Proposed Rule. In FSRA’s view, this particular paragraph in the Second Proposed Rule codifies this long held interpretation and does not result in any substantive change in the Take-All-Comers requirement.

The proposed drafting preserves most of the substantive intent of the UDAP Regulation and is intended to protect consumers against insurers treating consumers in unfair or discriminatory ways and otherwise circumventing the Take-All-Comers rule. The Second Proposed Rule already incorporates changes to enable greater flexibility in the case of affiliations.

FSRA has not seen evidence or use-cases that would provide a sound basis for relaxing affiliated insurers restrictions any further in the Second Proposed Rule.

Stakeholders generally expressed support for FSRA’s transition to principles-based regulation. A stakeholder suggested that FRSA should ultimately adopt the CISRO/CCIR  FTC guidance. Some stakeholders noted that particular language used in the Second Proposed Rule, such as “not limited to,” would create ambiguity in determining whether a UDAP has occurred.

A stakeholder requested that industry be given a six-month period to review their practices and make necessary adjustments to comply with the Second Proposed Rule, if the Second Proposed Rule comes into force.

One stakeholder recommended that FSRA partner with industry to create learning forums, discuss roadmaps to transition and consider approaches taken by international practitioners of principles-based regulation.

Some stakeholders expressed concern about how market conduct will be monitored and enforced in connection with the Second Proposed Rule. Other stakeholders emphasized the need for clarity regarding rights and obligations, sanctions, and robust enforcement mechanisms, and consequences. One stakeholder also provided recommendations respecting drivers’ data collection by insurers.

FSRA welcomes the positive feedback received concerning FSRA’s broader transition to principles-based regulation. Outcomes-focused drafting and criteria are intended to provide FSRA with the discretion to determine whether a UDAP has occurred based on clear legal tests and upon consideration of all relevant circumstances.

The Second Proposed Rule holds the insurance sector to a high standard of business conduct in keeping with the UDAP Regulation and in further alignment with certain sections of the CISRO/CCIR FTC guidance. At the same time, FSRA expects regulated entities to bear greater responsibility for ensuring compliance with the Second Proposed Rule, including exercising judgment regarding appropriate conduct on matters of public interest such as potential UDAP violations. Using a principles-based approach to regulation and supervision, regulated entities are expected by FSRA to treat consumers fairly, which includes accountability for fair conduct in cases where the law is subject to interpretation and all ambiguities have not been removed through prescriptive drafting focused on prohibiting or permitting specific business activities.

With respect to providing the sector with a transitional period to adjust to the Second Proposed Rule if it comes into force, FSRA does not believe such a transitional period is necessary. The Second Proposed Rule in a substantial manner replicates the UDAP Regulations’ substantive intent and will not come into force until the statutory process for rule-making is completed and supporting consequential amendments to the Act come into force. Stakeholders concerned about compliance with specific parts of the Second Proposed Rule should contact FSRA.

FSRA may take stakeholder recommendations concerning public engagement into consideration as FSRA prepares to implement the Second Proposed Rule.

Concerns related to the collection of consumer data, including in relation to usage-based programs and incentives, are beyond the substance and purpose of the Board Approved Rule.

With respect to outlining specific enforcement mechanisms, FSRA does not have the authority to establish sanctions or disincentives through the Second Proposed Rule. Instead, sanctions are outlined in the Act and O. Reg. 408/12 – Administrative Penalties.