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Structure of brokerage firms : the Authority makes the point

by

Andrea Lubeck

17 April 2019 13:30

Frédéric Pérodeau | Photo : Réjean Meloche

The brokerage firms who will not be able to comply with the requirements to hold this title will have to change their corporate structure to that of agency in the property and casualty insurance, has confirmed Frédéric Pérodeau, superintendent of the assistance to clients and distribution to thefinancial markets Authority, at a conference held yesterday on the occasion of the Day of damage insurance.

These provisions, which apply only to personal insurance, includes five specific requirements for brokerage firms. First, they must be able to obtain bids from three insurers financial groups that are different.

They must also not be an insurer for which the agency model is necessary.

Then, the representatives who are attached to the brokerage firm should be of the brokers that offer a choice of products.

In addition, firms will need to comply with the provisions relating to the capital, which frame the participation of insurers.

Finally, they will have to make a series of disclosures in the Authority and on their website.

Submissions or agreements ?

In his remarks, Mr. Pérodeau has hinted that a brokerage firm must obtain three quotes from insurers from financial groups that are different as being one of the requirements to maintain the title of brokerage firm. However, following a question from the president of the Regroupement des cabinets de courtage d’assurance du Québec (RCCAQ), Patrice Pouliot, stating that the text of the law indicates that a firm must have distribution agreements with three insurers financial groups that are different, Mr. Pérodeau was pointed out that if the terms he used are different than those of the law, the latter prevails.

“The goal of these innovations is to ensure that a representative that said broker is a true, that it offers the services of a broker, and also allow consumers to know with whom they conduct business,” says Mr. Pérodeau. These provisions of the act come into force on 13 December 2019.

To change the corporate structure

Among the scenarios proposed by the Authority to comply with the new law, the regulator does not exclude the possibility that the brokerage firms that do not comply with the requirements may need to change their corporate structure, to become agencies, in both personal insurance and insurance companies, is to have two entities that sépareraient the two practices.

“Some tell us that because of their concentration with one insurer and their corporate structure, they will become agencies in personal insurance. Theoretically, this is simple. In practice, it poses a certain level of complexity because these firms there wish to remain insurance brokerage firms in the business. This represents a challenge because the act provides that an agency of damage insurance, shall be qualified as such for all of its activities, or insurance to individuals and businesses “, he recalled.

However, this change may lead to ” tax considerations material “, reports Mr. Pérodeau.

Meetings with the industry

Mr. Pérodeau was also revealed that the Authority has met with several industry stakeholders, including brokers, the RCCAQ and insurers, but also the banners. “We have held meetings with the managers of the banners to have an understanding of their role and their reality, their concerns “, he said quickly.

It is that the Authority offers to smaller firms who can not get by themselves to distribution agreements with three different insurers to opt for the model of banners. The regulator is said to have found that this approach in contrast to some due to ” costs that will arise from this solution for them.” Mr. Pérodeau has not advanced to respond to this fear.

In their meetings with the Authority, certain insurers were “ready to collaborate and offer their products through other brokers” and to bear the costs of marketing, training and technology related.

“Some [insurers] are concerned with the distribution agreements that dealers have with other insurers. They say to themselves, “if there is a part of the compensation [to the broker], which is related to the loss ratio, is what I’m going to place it just bad risks ?” What are all of these concerns and realities that we are being taken into account in order to have a good understanding of the environment, ” he added.

Application of the act

Authority account, in particular, on the firms to ensure the implementation of the obligations. In effect, the regulator will change its registration forms and maintenance ” to allow a certain degree of self-compliance. “We will invite the firms to confirm themselves that they comply with the requirements of the law,” said Mr. Pérodeau. This will also enable the regulator to collect information on the business models in the industry following the entry into force of the new rules.

The inspection staff will also work to ensure the application of laws and regulations, while demonstrating ” fairness and discernment.” “It’s a safe bet that the colleagues of the inspection will be rather in fashion to the accompaniment of the industry to ensure that people who want to meet their legislative obligations and the rules and regulations are means to do so,” he announced.

Finally, Mr. Pérodeau states that implementation efforts in the application will be deployed ” in order to sanction the breaches identified by our detection efforts, and also in the context of the complaints that we receive “.

What products will be impacted ?

The Authority says that his thinking continues to know what are the products covered by the requirement to have arrangements with three insurers financial groups that are different. From the outset, Mr. Pérodeau called the car insurance and home insurance. But it does not exclude that the products are sub-standard are also part of this requirement.

“For the moment, the scenario that seems most prevalent and who is considered, but that can always change, is to aim for the standard products only. Some will be of the opinion that sub-standard should also be included. Nothing is final for now “, he says.

He explained that the Authority wishes to continue his understanding of the issues and the reality of the industry to feed its reflection on this topic.

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