Enforcement & Decisions
The mandate of the Insurance Council of Manitoba is to act in the public interest to protect Manitoba consumers of insurance products, and to regulate insurance agents to ensure adequate standards are maintained for public protection.
Consistent with this mandate, the Life Insurance Council of Manitoba has developed a broad outline of the basic information that must be considered prior to proceeding with investment in individual variable insurance contracts (commonly referred to as segregated funds), and the minimum documentation that should be contained in a client file. This guideline is not exhaustive, and may not be the only acceptable practices that apply in any specific situation.
Code of conduct
The general principles outlined in the Life Insurance and Accident and Sickness Insurance Agent Code of Conduct are applicable to the sale of individual variable insurance contracts. The Life Insurance Council of Manitoba has identified those areas of the Code of Conduct which most directly relate to individual variable insurance contracts:
Section 1 – Interests of the Client
Section 2 – Needs of the Client
Section 3 – Legitimate Business Interests
Section 4 – Professionalism
Section 6 – Conflicts of Interest
Section 7 – General Information Disclosure and Documentation
What the agent needs to know
It is reasonable for consumers to expect that the agent has the education and expertise to advise them with regard to the investment of their funds. Selling individual variable insurance contracts without the requisite knowledge and expertise may put the agent in jeopardy of disciplinary action or litigation. Information specific to the strategy and product must be provided to the consumer to enable them to make an informed decision. The knowledge required includes the items below:
- About Investing:
Principle of Risk and Reward
Assessing Risk Profile
Asset Allocation and Diversification
Different types of risk
Risk measurement tools
Regulatory Requirements - About the Consumer:
Investment Objectives
Risk Tolerance
Investment Time Frames
Investment Knowledge
Assets and liabilities
Amount available for investment - About the Individual Variable Investment Contract:
Maturity Guarantees available
Death Benefit Options available
Other guarantees available (e.g. GMWB)
Costs associated with the contract
Costs associated with the guarantees
Volatility of potential returns
Impact of withdrawals on any guarantees
Sales charges (e.g. up front, deferred, no load)
Resets available
Funds available within the contract
Tax implications associated with the contract
Rights if consumer should decide to rescind the contract (time frames)
Costs if contract is surrendered - About the Funds Available Within the Contract:
Investment philosophy and objective of Fund Manager(s)
Amount and type of risk in each fund
Investments held by the fund (e.g. top 10 holdings)
Fund past performance
Technical details of fund (e.g. age, size, turnover rate) - How the Consumer can get additional information or assistance:
Information available in Information Folder
Fund Statements
Company Website
1-800 phone number
Company Client Service, Ombudsman, Regulatory body
Documentation/Retention
Documentation must be retained should it ever become necessary to verify that all the proper steps were taken in making the recommendations. At a minimum the following documentation should be retained in the agent’s files:
Documentation of consumer contact(s)
Documentation of consumer’s risk tolerance, time horizon, investment knowledge and objectives
Documentation which supports a leveraging strategy, if applicable, and client acknowledgement of risks
Documentation of transaction instructions and authorization and detailed notes of client meetings and discussions
Effective June 1, 2009 the Life Insurance Council of Manitoba has replaced the Basic Disclosure Statement (BDS) with the Life Insurance Replacement Declaration (LIRD).
The LIRD outlines a number of essential elements that the consumer must be aware of and receive answers to prior to considering the replacement of an existing life insurance policy or rider, and will ensure that the consumer receives full disclosure of all the relevant details required to make an informed decision. A written comparative analysis of the advantages and disadvantages of replacing the life insurance policy must be completed with the LIRD and copies of the documents provided to the client.
In Manitoba, a copy of the LIRD must be sent to the new insurer and maintained on the agent’s file, along with a copy of the written comparative analysis. It will no longer be required that the existing insurer receive a copy of the replacement documents.
Effective December 1, 2009, only the LIRD and associated requirements are accepted.
Responsibilities of Agent:
It is the responsibility of the life insurance agent to ensure that any replacement of existing insurance occurs in accordance with the principles of “Interests of the Client” and “Needs of the Client” as outlined in the Life and Accident & Sickness Insurance Agent Code of Conduct. This requirement, stated simply, is that the client’s interests and needs must be placed first. It requires the highest level of integrity and performance on the part of the agent, and that the agent is obligated to recommend the amount and type of life insurance that is best for the consumer’s circumstances.
As each situation is unique, the process by which the replacement of life insurance occurs and the manner in which the advantages and disadvantages of replacement is illustrated must be tailored accordingly. All aspects of insurance coverage will not be of significant relevance in each replacement situation. However, the responsibility to ensure that all significant information relative to the replacement is provided to the consumer prior to commencing with an application for life insurance intended to replace existing coverage rests solely with the agent. Submitting an application for new insurance prior to presenting the written comparison is not acceptable and may result in disciplinary action by the Insurance Council of Manitoba.
The client should be encouraged to ask additional questions following the joint review and discussion of the questions outlined on the Life Insurance Replacement Declaration.
Direction:
If after consultation with the client, completion of needs analysis and review of existing coverage it has been determined that replacement of some or all of the existing coverage is in the client’s best interest, it is the agent’s responsibility to gather all the information required to prepare a written comparison.
In addition to the LIRD, the agent must prepare a written explanation of the advantages and disadvantages of replacing the existing policy. While the questions outlined on the LIRD serve as a guide to complete this summary of significant comparative information, it is equally important that the written explanation and comparison include all factors supporting both replacement and conservation.
The format of the written explanation is left to the discretion of the agent. In complex cases, a comparative format with explanatory recommendations may be warranted and should be completed. However, in all cases the written explanation must be complete and comprehensive.
A copy of the written explanation must be left with the client, along with a signed copy of the Life Insurance Replacement Declaration. A copy of the written explanation of the advantages and disadvantages must be signed by the client, and retained by the agent. A copy of the signed LIRD must be provided to the new insurer with the application. It is not required that a copy of the LIRD be sent to the existing insurer.
A photocopy or original of the Life Insurance Replacement Declaration, signed by the client, along with a copy of the written explanation of the advantages and disadvantages of replacement signed by the client, must be retained in the agent’s file and be producible by the agent to Council upon request.
If the agent is currently operating under the supervision of a “Supervising Agent”, the written explanation of the advantages and disadvantages of replacement must also be signed by their supervising agent. This co-signed copy must be maintained by the agent for review by Council if requested.
In all circumstances, it is essential that the agent advise his/her client not to cancel their existing coverage until such time as new coverage has been approved and is in force.
Compliance:
The Insurance Council of Manitoba will respond to complaints from any source which indicates a replacement of insurance may not have been in the best interests of the client, or that the client was not provided with full information required to make an informed decision. Upon receipt of a complaint, the agent will be required to provide substantiated evidence and documentation which demonstrates that full and proper disclosure was completed and presented to the client prior to the completion of a new application. This documentation must include, but may not be limited to, the Life Insurance Replacement Declaration and the written explanation of the advantages and disadvantages of replacement.
The revised procedure for the replacement of insurance does impose an increased onus on the agent to be complete and thorough in their analysis and documentation. However, the tailoring of the comparison in the event of proposed or intended replacement of existing life insurance coverage to individual clients provides the consumer with information relevant and specific to their own particular circumstances and offers the clients the ability to have a greater understanding of their insurance products and the opportunity to make a more informed decision.