OSFI’s new “shark tank” approach to stale-dated guidance

Canada’s solvency regulator is planning to prune some of its redundant guidance and regulations — putting them through a “shark tank” exercise to see if they are still needed — in a response to recent survey results showing the P&C insurance industry is frustrated with the growing weight of regulatory activity.

“We’ll continue to listen [to the property and casualty insurance industry],” OSFI superintendent Peter Routledge told hundreds of delegates attending the National Insurance Conference of Canada (NICC) in Vancouver last Monday.

“One of the things we’re doing very soon… is to complete Phase 1 of what I call our regulation ‘Shark Tank.’

“Hearkening back to the change in our mandate, we have a financial component and a non- financial component, if a guideline doesn’t fit cleanly into one of those two components, I don’t know why we have it,” Routledge said.

“And so, we’ve taken a ‘Shark Tank’ approach. We’ve gone through our guidelines and our advisories and I think by the end of this year, we’ll have an announcement about Phase 1, which is very easy ones where we’re either getting rid of them or decommissioning them.

“I don’t think it’s going to change any company’s life dramatically, but it’s the first step to beginning to clear out some of the regulatory ballast. Phase 2 will be a deeper dive into guidelines that still have useful prudential principles, but maybe they’re superseded by other guidelines.”

In Phase 2, Routledge said, the emphasis will be on streamlining regulations, so older but still valuable prudential principles from outdated regulations will be incorporated into updated guidance.

Routledge was introduced at the NICC industry conference with John Williams’ famous musical score from Star Wars, which introduces Darth Vader, one of the most iconic villains in cinematic history. In essence, Routledge and the industry organizers were acknowledging, tongue-in-cheek, the OSFI survey results published in late July.

The results showed 85% of the industry is either very satisfied or satisfied with the work of Canada’s solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI). But the insurance industry is increasingly expressing frustration with regulatory burden.

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“While OSFI is viewed as effective in providing a clear indication of its expectations,” the report by the Canadian Solvency regulator observes, “ratings have dropped significantly and are much lower for…developing guidance that strikes an appropriate balance between prudential considerations and the need for institutions to compete (declined 19 points from 2021).”

Insurance Bureau of Canada president and CEO Celyeste Power explained the frustration in her fireside chat with Jason Kenny, the former premier of Alberta.

“I do think federally, we’re really hoping to see some change in understanding how regulation can impede competition and innovation, and also provincially,” Power said. “Right now, insurers, while processing 280,000 claims from the summer’s events, paying out $7.1 billion in insured losses, are also trying to keep up with 40 to 45 regulatory consultations.

“And so when you think about where you put your resources, where you put your time, can we innovate for our customer? Although we have to do these 40 regulatory consultations, we’re trying to help our customers on the ground. But we also have to balance this regulatory consultation.”

“Analysis paralysis,” as Kenny summarized.

Part of the issue is that “OSFI is really expanding out into non-financial risk areas,” as Stikeman Elliott LLP partner Stuart Carruthers explained at the Hot, Hotter and Hottest Regulatory & Legal Topics panel at the NICC.

“If I had to think of one big macro theme [in 2024], it would be that OSFI continues to evolve from being more of a historically prudentially focused regulator to a non-financial risk focus regulator…

“They’re focused on all these new areas that tie into the supervisory framework, including tech and cyber risk, AI, culture, governance, climate, outsourcing, operational risk, integrity and security, and looking at MGAs. All of these operational, sort of indirect, risk areas have become a big focus.

“At the same time, transactional approvals…take a lot longer. Much longer than historical. So, that’s part of the challenge.”

Feature image courtesy of iStock.com/CoreyFord