June 14, 2019

Insurance offerings via the internet: at the dawn of a new regime

It will now be possible to enter into an insurance contract through an online platform or mobile application.

Il faudra sans doute adapter certaines pratiques établies afin de naviguer en conformité avec ce nouvel environnement réglementaire.

The offering of financial products and services via internet is the subject of a new specific framework under Bill 141, further to several years of consultation and the adoption by the legislature of amendments to the current regime to allow the offering of insurance products without a certified physical person acting as intermediary. Under the law until now, an insurance product had to be offered by a certified representative, in other words a physical person.

Pursuant to its regulatory power, the Autorité des marchés financiers (AMF) published the Regulation respecting Alternative Distribution Methods, setting out the terms governing the distribution of insurance products by internet. The same day, the AMF published a notice explaining the manner in which it intends to apply the Regulation and the Act governing distribution by internet.

Most of the legislative provisions will come into force on June 13, 2019, and some on June 13, 2020. The enactment of this legislation is part of a period of regulatory transformation. A new regime concerning damage insurance brokers and the ownership and characteristics of damage insurance brokerage firms will come into force on December 13, 2019.

It will surely be necessary to adapt certain established practices to comply with this new regulatory environment. The AMF has confirmed, however, that this is not a separate regime from the one already in place. Therefore, the same obligations, including the duties to advise and inform, continue to apply in regard to clients.

Who is affected?                                                                                                      

Legal persons acting as firms in accordance with section 70 of the Act respecting the distribution of financial products and services (ADFPS), amended by Bill 141, will be able to distribute insurance products by internet. Thus, both insurers and insurance firms registered as firms with the AMF will be able to do so. Distribution via the internet may take place without a representative acting as intermediary.

Disclosure of information to the AMF

The Regulation sets out the obligation to provide certain information to the AMF, including:

  • the name given to the digital space, where this name differs from the name of the firm;
  • the names of the products and the classes to which they are related or the nature of the financial services offered on the digital space;
  • the hyperlink or any other means to access the digital space; and
  • the insurers whose products are offered on the firm’s digital space, if applicable.

The AMF must be informed of any change to this information within 30 days of such change. Moreover, at the time of its maintenance of registration application, the firm must disclose to the AMF the number of financial plans prepared, claims settled and insurance policies issued, as well as the amount of premiums written, only through its digital space. It will also be necessary to disclose the number of cases in which a client rescinded his or her insurance contract within the 10-day statutory period permitted under the Insurers Act, which replaces the Act respecting insurance.

Information to be provided to the client

The Regulation also sets out the obligation to present information through the digital space in a clear, readable, specific and not misleading manner so as to highlight the key elements required for informed decision-making regarding the financial product or service. In practice, such obligation may be assimilated to the duties of information and advice imposed on certified representatives.

Moreover, like section 28 of the ADFPS, which requires certified representatives to specify the nature of the coverage offered by an insurance contract before its conclusion, the Regulation provides that insurance firms must identify the following elements through their digital space before concluding an insurance contract:

  • the product coverage, exclusions and limitations affecting the needs identified;
  • any other clauses that may have an impact on the insurance coverage;
  • a warning regarding the consequences of misrepresentation or concealment; and
  • a recap of the information collected from the client and the options and conditions the client has chosen relating to the product.

Similarly, as soon as the contract is concluded, the client must receive a confirmation that the contract has been entered into and the temporary insurance, if applicable. The client must also be informed of the 10-day right of rescission provided for in sections 20 of the ADFPS and 64 of the Insurers Act, as well as the procedures for exercising that right.

Obligations of firms regarding the operation of the platform

The Regulation sets out several obligations concerning the technical aspects of the digital space. Among other things, firms will need to implement standards ensuring that the client performs an action each time a confirmation or the client’s consent is required.

In addition, all action on the digital space must be suspended or terminated in the event a discrepancy or an irregularity in the information provided by the client may lead to an inappropriate result or if the client does not meet the eligibility criteria. Finally, an action initiated must be suspended in the event the client expresses the need to interact with a certified representative and cannot do so immediately, or if there is a risk that the client will not be able to make an informed decision (despite the information provided).

Liability regime

Section 86.0.1 of the ADFPS provides that the professional obligations imposed on representatives by sections 17 to 19, 26 to 28, 31, 32, 35, 36 and 39 of the ADFPS are applicable to firms when a product or service is offered entirely online.

For example, the duty to advise and inform imposed on certified representative by sections 27 and 28 of the ADFPS are henceforth applicable to firms when the product is transacted online.

Summary

  • In sum, the framework governing insurance offerings via the internet does not create a parallel regime with rules that are different from those applicable to the other distribution channels. With the necessary adjustments, the responsibilities of certified representatives will be supported by firms transacting online, as the platforms must be designed to provide advice. It remains to be seen how this new distribution channel will be used – as a complimentary tool or an outright switchover to this new modernized distribution method?