The Canadian Life and Health Insurance Association is to be commended on its proactivity in proposing a new guideline for compensation disclosure in group benefits and group retirement services. But while transparency is a key driver of client satisfaction, in other countries — like Australia and the U.K. — it has taken regulators to force the hand of insurers and intermediaries to improve disclosure standards.
A new survey by NMG Consulting Ltd., which conducted in-depth interviews with Canadian consultants, brokers and third-party advisers found the majority of intermediaries that place group benefits business in Canada were either positive or neutral about improved disclosure.
Naturally, there are detractors in all three intermediary segments. As well, the CLHIA recognized some concerns within the adviser community, leading to recent amendments to the implementation timeline and disclosure requirements.
Positively, international experience has shown greater transparency improves intermediary value propositions and client relationships. It forces advisers to consider the cost/value of their advice services and, in doing so, better align their services and fees to the needs of their clients. Such propositions, combined with relationship effort, strengthen the bond between intermediaries and clients.
Disclosure will also impact insurers. Remuneration and incentives will be reduced, and the importance of service factors as drivers of selection will increase. So insurers that excel at service and invest wisely in their platforms should outperform those that do not.
However, one feature of G19 that looks odd is that the remuneration earned by intermediaries could be explained to clients by insurers, when first principles would support intermediaries presenting their fees to their clients, which can then gauge the fees they pay relative to the benefits they receive. In its updates, the CLHIA has acknowledged the need for adviser involvement in disclosure, a positive move that’s aligned with disclosure requirements in other international markets like Australia and the U.K.
We think it’s positive the CLHIA continues to engage with advisers as it updates the guidelines. As well, experience overseas suggests intermediaries will be well-served by being on the front foot in considering how they adapt their business model for the inevitable disclosure regime and then be proactive in its implementation.
Karan Sabharwal is a principal consultant in NMG Consulting’s Toronto office.