Tuesday, February 3, 2009

(No 11)Like A Hospital Gown: the incidental sale of insurance

There is a category of insurance activity in Canada classified by provincial insurance regulators under the heading of "the incidental sale of insurance" (ISI), i.e., incidental to some other transaction like buying a car or taking out a mortgage. The biggest part by far of this ISI insurance activity belongs to creditors group insurance related to the banks' mortgages and loans.

The big life insurance companies in Canada which 'manufacture' creditors group products for the banks (the leaders in this being Sun, Manulife and Great-West) make a very nice profit on this stuff as well as other ISI-related product. They have been reluctant to give serious public attention to correcting the problems for insurance consumers arising from the incidental sale of insurance which they -- the life companies -- manufacture for sale by, for example, travel agents, car dealers and bank branch staff.  

The provincial insurance regulators, because of all the complaints they were getting from ISI buyers, turned their attention to ISI -- and so they should have done. Last year, after some effective proactive work by the companies' trade association -- the Canadian Life & Health Insurance Association [CLHIA] --  the industry managed to dodge several potential ISI-related regulatory bullets. In effect the regulators' gave the industry the chance to address ISI-related problems so that regulators will not be forced to revisit the subject carrying new regulations. However I think it likely that they will have to do so.

The fact of the matter was and is that too many Canadian consumers signing up for this or that form of insurance incidental to arranging for a mortgage or car financing or a trip to Veradero simply do not understand what they have purchased and its limitations. Too often for the consumer this ISI-type coverage is like a hospital gown  -- you only think you are covered. 

Life insurance agents have long been the objects of criticism (often unfairly) for sales practises involving individual insurance and asset products. Therefore it is worth noting that ISI products and sales activity constitute a laundry list of products NOT sold by 'traditional' agents and brokers. Indeed one step regulators should take is to require that all persons involved in the sale of ISI-type products be required to meet the same licensing standards as 'traditional' life insurance agents, i.e., they should hold full agent licenses before they are allowed near buyers of any type of insurance.

Consumer concerns and complaints about ISI are often well-founded and reflect badly upon the entire insurance industry, not just on those banks, travel agencies and car dealers operating in the ISI corner of the business.  It is past time for the larger life insurance companies in Canada to step up publicly (as well as within the CLHIA) and show some real leadership in solving a problem for Canadian insurance consumers.