Regulator approves proposed ‘novel way’ of commercial insurance distribution

The Financial Services Regulatory Authority of Ontario’s (FSRA) Innovation Office has approved its first application under its test-and-learn environment — a regulatory ‘sandbox’ that allows the industry to test out new ideas, concepts and innovations.

An insurance company is proposing to test a novel way of distributing commercial insurance products across Ontario through a “direct access model,” FSRA said in a press release Wednesday.

The direct access model is an arrangement between insurers and other entities through which one insurer’s agents, acting under the supervision of a common managing general agent, would provide their clients access to a suite of niche commercial insurance products from different insurers, FSRA explained.

The Insurance Act currently limits licensed general insurance agents to act for a single insurer unless insurers are carrying on business in a common undertaking.

The proposed innovation allows insurer agents to offer commercial insurance products on the basis that the various entities supporting the direct access model are an “affiliated group of insurers” carrying on a common undertaking.

“Through FSRA’s test-and-learn environment the insurance company hopes to demonstrate that the direct access model will improve market access and convenience for consumers,” the regulator said.

FSRA’s director of innovation policy, Stephanie Appave, told Canadian Underwriter “there are multiple commercial insurance products this could apply to, not one area specifically,” when asked about the commercial niche area. The insurer will decide which options might best meet the needs of their client, Appave explained.

FSRA (CNW Group/Financial Services Regulatory Authority of Ontario)

“As our first approval, if this is successful, it helps open the door for other developments and may lead to further modernization in the industry,” Russ Courtney, FSRA’s senior media relations and digital officer, told CU.

The name of the insurer is not being released for commercial sensitivity reasons, Courtney added.

“It is FSRA’s view that in this case, this novel distribution model has the potential to provide significant benefits to consumers and possibly facilitate the modernization of insurance distribution in Ontario,” FSRA executive vice president Glen Padassery said in the release. “However, we will work closely with the applicant to ensure that undesirable consumer outcomes are avoided, and appropriate safeguards are developed to protect individuals and families across the province.”

During the product testing phase, the insurer will have to ensure the competence of their agents, that clients are being treated fairly, that there is proper governance and agent oversight, and there is a consumer complaint-handling process in place.

The insurer will also have to provide tools and resources, including training, to assist agents with information about the new products and ensure consumers’ rights and interests are being protected.

FSRA launched its innovation centre in 2020 to help identify, support and enable innovation across the financial services sector. The test-and-learn environment (that made initiatives like this possible) launched in 2022, and this is the first approved application.

The Innovation Office has released a framework to standardize the way it reviews new ideas, product and services. At the same time, it established a test-and-learn environment to validate and assess potential ground-breaking advancements before they are introduced into the Ontario market.

Looking ahead, Appave said if the undertaking is successful, “it will help consumers have access to more options while cutting down on the legwork required to shop around for what best suits their needs.

“We’ll be monitoring this initiative very closely to ensure that our main goal is realized — consumers are fully protected,” she said, adding that FSRA hopes others can take lessons to help facilitate their own innovations.

Since the launch of the Innovation Office and the establishment of its test-and-learn environment, FSRA has been collaborating with the financial services sector to understand the barriers they face and how the regulator can support their ideas, while establishing guardrails that protect consumers without stifling innovation, Appave said.

“FSRA will leverage insights from this initiative to help refine our approach and continue to grow Ontario’s financial services sector.”

Feature image by iStock.com/JamesBrey