Monday, October 8, 2012

(No.216) CISRO's 'harmonizing' : life insurance licensing revisited

CISRO's 'harmonizing': the life insurance agent licensing regime of LLQP revisited

by Alastair Rickard

During my years in the Canadian life insurance business I spent a great deal of time, including sixteen years as chair of the Canadian Life and Health Insurance Association's (CLHIA) standing Committee on Distribution & Intermediaries, involved with insurance regulators and regulatory issues. Much of this activity dealt with the sale of life insurance and with those who sell the policies.

I met and worked with many interesting and knowledgeable people in the life insurance business as well as regulators. I also had to coexist with some people who were gormless prats and a waste of oxygen as well as meeting room space. My experience with insurance regulators was that there were probably fewer of them (proportionately) in this lackluster category than industry people.

Much of the subject matter was interesting. However some of it took up frustratingly long days of my life and it is a matter of regret that I cannot recover them -- which brings me to the subject of this column.

More than a decade ago provincial insurance regulators outside Quebec decided that the examination regime then in place as a requirement for someone to become licensed as a life insurance agent needed to be updated and upgraded. (Outside Quebec all such persons, whether or not they hold themselves out to the public as 'brokers', were then -- as now -- licensed as life insurance agents).

The regulators were right on both counts and I agreed with them although I had concerns about the particulars of their plan for a new Life Licensing Qualification Program (LLQP).

Nor did I care for the way in which certain insurance regulators came down from their bureaucratic mountains carrying a tablet on which had been inscribed their blueprint for a new regime and presented it to life insurance industry stakeholders as a virtual fait accompli. (Recently history has repeated itself; more about that shortly although I note that there is too much to be said for just one column.)

In fact the reality of what happened then was the onset of a somewhat belated urgency of focus which energized several elements in the life insurance business. They awakened to the potential problems of the LLQP regime as originally drafted. There was push back, discussion and joint effort. Over time a number of industry people including CLHIA staff spent many hours working together as well as with certain regulators to improve the LLQP -- with some success.

The modern history of life insurance licensing in Canada reminds me of the Japanese saying: 'By knowing one spot you know the whole leopard'. What that proverb does not embrace is the reality of how some people understand or even remember too little of the lessons and experience of industry history.

A particular aspect of Canadian insurance history is now being revisited. The inter-jurisdictional group of insurance regulators, the Canadian Insurance Services Regulatory Organizations (CISRO), having apparently consulted nobody outside regulatory ranks beforehand ( not even the four life insurance companies which are also registered LLQP course providers), has announced a replacement regime for the LLQP: the "Harmonized Life Insurance Licensing Qualification Program".

The regulators now say they are ready for discussion with industry stakeholders -- even if it's only about details on the margins of their grand plan. While pains have been taken to present it as if it will still be the LLQP, and while it may have that name once implemented, the proposal actually is for a new regime to be prepared by Quebec's financial services regulator the Autorite des marches financiers (AMF) and will follow the Quebec model including multiple exams based on separate study modules and manuals.

In fact the story is this: the LLQP requires neither replacement nor "harmonization"; the common law province insurance regulators see themselves facing a funding gap when it comes to the LLQP and related matters; Quebec regulators (as I know from my dealings with them) have operated a higher cost regime the expense of which they have long wished to spread by reaching some deal with the common law provinces. Voila! A deal to "harmonize" the LLQP with Quebec's AMF regime.

The reader may well say, so what?

The 'so what' is the prospect of replacing an LLQP regime into which much expertise and effort has been invested, one with a clear record, with another  regime approach whose results are not superior to those in the common law provinces. But its higher costs as a system as well as for exam writers combined with increased complexity, inconvenience, awkwardness and bureaucracy will (among other things) constitute yet another barrier to getting new people into the difficult business of providing Canadians with genuine opportunities to purchase life insurance.

This matters in terms of the life insurance consumer because, the imperfect understanding of certain 'expert' critics of the industry to the contrary notwithstanding, the bulk of new individual life insurance in North America continues to be sold by agents, i.e., people who are actively in the marketplace finding and advising people who will not initiate the purchase of this core product ( an important one to society as well as to most individuals' survivors) either at all or in appropriate types and amounts.

Another aspect of this whole exam regime, past and future, is the failure -- in some cases even the resistance -- of most regulators to the placing of far more emphasis on higher levels of continuing professional education required of licensed agents ( combined with vigorous supervision and enforcement) and to recognizing the importance to the consumer of the value of experience.

The reality is that most provincial insurance regulators could care less whether an agent, once licensed, ever sells a life insurance policy to anyone. Indeed the majority of those holding life insurance licenses in Canada, for reasons I will not go into here, do not sell life insurance -- either at all or do so only minimally.

The only real rationale advanced in the CISRO proposal for a new regime, i.e., for the replacement of the LLQP as we know it (for that is what is being proposed) is a self-constructed reality. This regime change, we are to believe, is actually required by inter-provincial agreements, especially as between Ontario and Quebec, specifically the Agreement on Internal Trade (AIT) and the Ontario-Quebec Trade and Cooperation Agreement.

There is nothing in them that requires CISRO's proposed approach to 'harmonization".

CISRO's case for the de facto replacement of the existing LLQP regime by an AMF-designed model has not been rendered penetrating, convincing or coherent by having member regulators cut down the current LLQP tree, climb up on its stump and declare the CISRO "harmonization" to be "need[ed] to align with provisions under the [AIT] and other jurisdictional agreements". More to the point, this proposed approach is both unnecessary and unjustified and carries with it the prospect of increased challenges for potential entrants to the business in the common law provinces in comparison with a continuation of the current LLQP regime.

While the Quebec licensing regime run by the AMF has not produced a systemic result superior to the LLQP in the common law provinces its involvement with a supposed "harmonization" of the Quebec system with those of other provinces may well run afoul of the recently elected PQ government (including, and perhaps particularly, the removal of Quebec's unique CGEP licensing requirement as part of the "harmonization" deal with CISRO). This separatist government, including its Finance Minister Nicolas Marceau, may not be all that keen on any "harmonization" of a uniquely Quebec system with that in the common law provinces once the Minister's political advisors bring this particular aspect of the proposed regime change to his attention.

Still this may not be a problem if the Quebec Finance Minister, who serves in a government which has already made the province's financial deficits even greater in the brief period since assuming office, comes to understand that the "harmonized" regime will inevitably cost exam takers in the common law provinces (who, of course, will have to bear the increased cost of the "harmonized" system) far more to acquire study manuals and write each of the multiple exams. After all the revenue generated to Quebec from the "harmonized" regime will likely be used to offset more of the costs (than is already the case) of its entire regulatory regime.

There has so far been rather too much passivity in response to the CISRO 'harmonization" proposal by insurance companies which ought to know better, having been down this road before. They have a direct, ongoing interest in bringing new people into agency systems. Of course one problem is that too few life insurance companies in Canada are actually doing this challenging job to any significant extent. It's easier for them to rely on attracting new individual life insurance business from experienced people, i.e., from those already licensed and in the marketplace.

As for the CLHIA committee dealing with agency matters which I once chaired, it could and should be an important vehicle for the industry to use in addressing the issues. However it is almost entirely populated not by agency people but by those who are in corporate compliance functions. Fine people to be sure but often not a company's best source of insight into agency and distribution matters nor best suited to agency-related push back.

It is time for people in the life insurance business who actually understand the reality of serious agency system issues to get involved in this episode of 'LLQP Revisited'. I am thinking especially of people like Kevin Dougherty, the President of Sun Life's Canadian operation and Vicken Kazazian who directs Sun's large, national career agency distribution system. Both have genuine insight into agency distribution and its issues. They need to whisper in the pear-shaped ears of those company and industry people who are supposedly representing the best interests of agents' and agency systems' in the councils of the industry.

Finally, it would be misleading and unfair regarding this subject to say of Canada's provincial insurance regulators, as Warren Buffet has of the financial world, that they would rather be wrong as a group than right on their own. There are senior and long experienced provincial regulators for whom I have considerable regard -- but not all.

If those industry stakeholders (like Sun Life) most directly concerned and involved with this proposed regime take a vigorous leadership role in discussions with insurance regulators, as was the case more than a decade ago, I do not see why reason and common sense should not again prevail over surrender to poorly thought out ex cathedra declarations from CISRO.




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