BC outlines new rule for brokers placing coverage with unauthorized insurers
As of February 28, 2011, insurance brokers in British Columbia must abide by a new rule that outlines the proper procedures for placing coverage with an unauthorized insurer.
The new Rule 7(11.1) establishes procedures licensed agents must follow when conducting an insurance transaction pursuant to the exemption contained in section 76 of the Financial Institutions Act (the “Act”). Section 76(1)(c) of the Act provides a limited exemption from the restriction in section 75 of the Act that prohibits placing insurance with an unauthorized insurer.
The Insurance Council of British Columbia says that the new rule addresses two issues, namely:
1. A requirement that licensees notify Council, in writing, prior to conducting any insurance transaction(s) in accordance with section 76(1)(c) of the Act; and
2. A licensee’s responsibilities when conducting an insurance transaction in accordance with section 76(1)(c) of the Act.
The one-time notification requirement must include the following information:
- the name of the individual agent or agency;
- in the case of an agency, the primary agent responsible for this area of business (“Lead Licensee”);
- a brief description of the qualifications of the agent or, in the case of an agency, the Lead Licensee; and
- confirmation the agent understands the disclosure and trust requirements contained in Council Rule 7(11.1).
Once it is determined a client’s insurance needs require the use of an unauthorized insurer, a licensee must first discuss with and obtain the client’s written consent to seek the necessary coverage from an unauthorized insurer. A licensee has an obligation to ensure the client understands the risks associated with doing business with an unauthorized insurer before the client makes this decision.
Once it has been determined that an unauthorized insurer must be used, the licensee must demonstrate the coverage sought was either unavailable or, if coverage was available from an authorized insurer, that it did not meet the client’s specific insurance needs. A licensee must be able to demonstrate how the client’s insurance requirements could not be met by an authorized insurer.
Upon identifying an unauthorized insurer, a licensee has an obligation, prior to completing the insurance transaction, to provide the client with complete written disclosure about the risks associated in dealing with the unauthorized insurer.
This disclosure should include, but is not limited to:
- details on the financial strength and credit worthiness of the unauthorized insurer;
- the course of action available, or the consequences to the client, if a claim is made but not paid by the unauthorized insurer;
- the consequences if the unauthorized insurer ceases to do business; and
- the client’s obligation to pay the insurance premium tax owed to the provincial government.
To read the full Rule and to see an example of the form of disclosure required, see the Insurance Council of British Columbia’s notice (PDF.)
