Market Conduct Regulation

Study guides: Exam 6C, Exam CFE-101

Market Conduct Regulation is provincial supervision of how insurers behave toward customers — sales and advertising, product suitability, claims handling, complaint resolution, privacy and the licensing of agents and adjusters. It is the counterpart to Solvency Regulation and is what a provincial Superintendent of Insurance spends most of its time on.

• The organising principle across Canada is now the fair treatment of customers, set out in joint CCIR/CISRO guidance covering the whole product life cycle: design, distribution, disclosure, claims and complaints.
• Claims handling is the highest-stakes area. An insurer owes a duty of good faith in handling a claim, and a breach is actionable in court as well as before the regulator — see Bad Faith Damages.
• Distribution conduct covers agent licensing and conduct, disclosure of compensation and conflicts, and the take-all-comers obligation in regulated auto markets.
• Insurers file an annual Market Conduct Annual Statement with provincial regulators (a CCIR product, distinct from OSFI's prudential Canadian Annual Return) reporting complaint counts, claims-denial rates and distribution data, which regulators use to target examinations.
• The industry's self-regulatory layer sits alongside: the Insurance Bureau of Canada's Code of Consumer Rights and Responsibilities and the General Insurance OmbudService for complaint escalation.
• Market conduct increasingly reaches actuarial work: whether a rating variable is fair (Unfair Discrimination, Bias in Actuarial Practice) and whether an algorithm can be explained to the customer are now conduct questions, not just pricing questions.

Is This a Conduct Problem or a Pricing Problem? An insurer's model charges materially more to policyholders who shop around less, using a "price optimisation" factor built from renewal-response data rather than expected loss.

Answer It is both, and the conduct dimension is the binding one.

• Actuarially, the factor is not a measure of expected cost. It prices elasticity, so two policyholders with identical risk pay different premiums for the same coverage.
• In conduct terms, that is charging on the basis of a customer's inattention. Canadian regulators have taken the position that rates must be justified by risk and expense, so the variable is not permitted in filings.
• The fair treatment of customers framing makes it worse than a technical filing defect: the practice targets the customers least able to protect themselves, which is precisely the outcome the guidance is written to prevent.

The actuary's professional position is straightforward. Supporting a filing whose classification plan is not risk-based conflicts with the Standards of Practice and with the duty to the public interest, whatever the commercial case for it.