Businesses in British Columbia (BC) that sell insurance incidental to their ordinary course of business will soon be required to take out a restricted insurance agent's license. In response to the BC Ministry of Finance's introduction of Bill 37, which is described below, the Insurance Council of British Columbia (Insurance Council of BC) is undertaking a consultation process with respect to pending changes to the licensing regime to develop a new licensing framework for restricted licensees.
Incidental selling of insurance
Despite harmonization efforts by the Canadian Council of Insurance Regulators (CCIR), an inter-jurisdictional association of Canadian insurance regulators, and the Canadian Insurance Services Regulatory Organizations (CISRO), an organization of licensing and regulatory authorities for insurance intermediaries, the regulation of the incidental sale of insurance is not uniform. The regulation of insurance intermediary market conduct is within the sole purview of the provinces and territories, which leads to vast differences among Canadian jurisdictions. In November 2008, CCIR and CISRO released a consultation paper regarding the incidental selling of insurance in Canada (ISI Consultation Paper). In the ISI Consultation paper, CCIR and CISRO defined an incidental seller of insurance as:
"A person who, in pursuing activities in a field other than insurance, offers as an accessory, for an insurer, an insurance product which relates solely to goods sold or services offered by the person or secures a client's enrolment in respect of such an insurance product."
Common examples are automobile dealerships selling guaranteed asset protection insurance or travel or tour operators selling travel or trip interruption insurance. One of the conclusions of the ISI Consultation Paper was that a restricted licensing regime would bring additional accountability in the distribution of insurance.
At present, Alberta, Saskatchewan, Manitoba and New Brunswick are the only provinces that offer a restricted insurance licensing regime. In each of these provinces, prescribed businesses are eligible for restricted licenses or certificates of authority that allow the business, through its employees, to sell prescribed classes of insurance.
Currently in British Columbia, the incidental selling of insurance is addressed through exemptions in the Insurance Licensing Exemptions Regulation that effectively allow certain businesses to sell prescribed classes of insurance. The rest of Canada has not expressly addressed incidental selling of insurance.
Bill 37: The Financial Institutions Amendment Act, 2019
The Financial Institutions Amendment Act, 2019 (Bill 37) was passed by the BC Legislature following a series of public consultations that began in 2015. Bill 37 introduced reforms to the Financial Institutions Act and the Credit Union Incorporation Act and is being brought into force in stages. In 2022, the British Columbia Ministry of Finance announced that it would give consideration to bringing into force sections of Bill 37 that would repeal certain aspects of the existing licensing framework to introduce a new framework for a restricted insurance licences in British Columbia.
Section 30 of Bill 37 contemplates the addition of section 174.1 of the Financial Institutions Act:
Issue of restricted insurance agent licenses
174.1 (1) The [Insurance Council of British Columbia] may, in accordance with the rules of council, issue a restricted insurance agent licence to a person within a prescribed class of persons or who carries on a prescribed class of insurance business.
(2) A restricted insurance agent license authorizes the licensee, through the licensee's employees and agents in British Columbia, to act or offer to act as an insurance agent in respect of one or more prescribed classes of insurance that are specified in the licence.
Section 60 of Bill 37 grants the Insurance Council of BC with authority to implement rules with respect to licensing of restricted insurance agents in British Columbia.
In its 2022 Consultation Paper, the BC Ministry of Finance stated that it was considering requiring similar businesses as in other provinces that have a restricted insurance licensing regime to take out a restricted insurance agent license in British Columbia. In doing so, the BC Ministry of Finance observed that consistency between provinces may be beneficial. The BC Ministry of Finance identified the following businesses and classes of insurance, which may require restricted licenses under the new requirements, subject to certain exemptions:
- Deposit-taking institutions generally offering credit protection insurance, travel insurance, and life insurance.
- Transportation companies generally offering travel insurance and cargo insurance.
- Travel agencies generally offering travel insurance.
- Automobile dealerships generally offering credit protection insurance, equipment warranty insurance, and guaranteed asset protection (GAP) insurance.
- Marine/watercraft dealerships, recreational vehicle dealerships, farm implement dealerships, construction equipment dealerships generally offering credit protection insurance, equipment warranty insurance, and GAP insurance.
- Sales finance companies generally offering credit protection insurance.
- Customs brokers generally offering cargo insurance.
- Freight-forwarding companies generally offering cargo insurance.
- Equipment dealers generally offering credit protection insurance, equipment warranty insurance, and GAP insurance.
- Funeral services businesses generally offering funeral insurance.
- Vehicle rental agencies generally offering rented vehicle (personal injury and personal property) insurance.
- Mortgage brokers generally offering credit protection insurance.
- Portable electronics vendors generally offering portable electronics insurance.
The BC Ministry of Finance has not published the results of its consultation to date. We expect the final list of businesses requiring restricted licenses in BC, along with the relevant classes of insurance and exemptions from the licensing requirements, to be released once the BC Government passes regulations relating to the new provisions of the Financial Institutions Act set out in Bill 37.
Insurance Council of BC to develop licensing framework
The Insurance Council of BC has the sole authority with respect to licensing of insurance professionals under the Financial Institutions Act. On May 22, 2023, the Insurance Council of BC announced it would meet with industry stakeholders to gather feedback regarding performance requirements to inform the restricted licensing framework.
Having regard to the restricted licensing regimes in Alberta, Saskatchewan, Manitoba and New Brunswick, some of the considerations that we anticipate the Insurance Council of BC will consider include:
- Rules surrounding market conduct (i.e. disclosure to be provided at the point of sale).
- Whether an insurer or another licensed intermediary may sponsor a restricted insurance agent.
- Initial restricted agent's licensee qualifications and ongoing requirements.
- Whether the holder of a restricted insurance agent's license will be required to appoint a "designated representative" or "nominee" and the education/qualifications for that person, if so.
- Licensing fees, and whether they will be set by license or by the number of employees.
While the Insurance Council of BC has not published any details with respect to participating in the consultation, industry stakeholders are invited to sign up for updates through the Insurance Council of BC Licensing Framework Engagement Page.
At Gowling WLG, we are committed to monitoring legislative and regulatory developments by industry sector. Our insurance regulatory professionals would be pleased to assist stakeholders in the consultation process. For any questions you may have about restricted licensing, market conduct relating to incidental sales of insurance or exemptions to licensing requirements, our Insurance and Professional Liability and our Financial Institutions & Services Practice Groups would be pleased to assist.