Insurance regulator's draft unfair practices rule and innovation

January 31, 2021

Last month, on December 18, 2020, Ontario’s insurance regulator (FSRA) launched a process to seek feedback from the public regarding its first proposed insurance rule: a new Unfair or Deceptive Acts or Practices (UDAP) rule.  If this draft rule is approved, it will replace the existing UDAP Regulation (O. Reg. 7/00) under the Insurance Act.  The proposed reform is aimed at addressing a range of objectives.  This article focuses on its implications for innovation as it impacts insurance customers and insurers.

The global pandemic has underscored the critical need for businesses – and, notably, essential services like insurance providers – to remain operational and able to effectively leverage innovation and digital tools.  Insurers in Ontario have been able to continue servicing customers by using some digital tools, but the old regulatory framework was widely interpreted as significantly impeding innovation that could better serve customers. 

Yes, insurers in Ontario can and do phone customers and make use of video-conferencing and some remote communication tools within certain limits.  However, the measures generally in place pale in comparison to those employed by leading businesses in other industries and jurisdictions that are truly digitally-enabled.  

Lemonade, for example, continues to make news for disrupting the insurance industry in certain U.S. and European jurisdictions with its digitally-powered strategy.  One example of the tech-driven way that Lemonade has achieved a clear competitive advantage is that it can digitally process or honour certain claims, from end-to-end, within just a few minutes.  

Awareness of these digital developments – and other forms of speedy digital customer service in other industries in Ontario – shapes the expectations of Ontario customers.  Millennial customers, leaning-edge Gen Z customers, and increasingly customers from other generational cohorts, expect fast and easy service.  Customers are not happy or satisfied with lengthy snail mail back-and-forthing.  Many customers do not have printers at home.  Various printing services are bogged down with more cumbersome processes given COVID-19 safety measures.  And in-person contact may ultimately carry some level of exposure during the pandemic.  

Understandably, customers prefer more convenience.  This was true even before the pandemic, and is even more pressing with the need for social distancing, and a growing need for ease of mind.  It is even more vital in the case of injured customers, who desire and particularly deserve a frictionless claims process.  While we focus here on the claims process – as that’s at the heart of delivering on the promise of insurance – all customer-facing aspects of the insurance business in Ontario have prime opportunity for digital enhancement. 

The pandemic and the related economic environment have shone a spotlight on how many businesses may fail if they are not digitally-enabled to offer fast and easy customer service.  Thankfully, Schedule 22 to Bill 229[1] was recently passed in December 2020 and, among other things, it expressly authorizes certain communications and exchanges of documents by electronic means.  

This article lacks scope to comment extensively on Schedule 22 to Bill 229, but it is sufficient to note that the statutory and regulatory landscape is shifting to enable innovation by insurers in Ontario.  In our view, this is certainly a good thing.  It is good for customers in terms of choices, experience, care received, and ultimately the price tags they may face in future.  The more insurers can weather this social-distancing and economic crisis, the better it is for competition and for options available to customers.  If insurers can also reduce their costs of doing business through the digital improvements, those savings bode well for the cost of insurance.

Turning then to the key question of FSRA’s proposed UDAP rule, as it relates to innovation.  In our view, FSRA should be commended for pursuing such reforms. The draft rule is a notable improvement on the existing Regulation, as the draft rule aligns with a principles-based approach to regulation in customers’ best interests.  

A principles-based regulatory approach means that, instead of making very prescriptive and specific rules prohibiting certain actions, the regulator instead establishes the principles to be observed to achieve the objectives of consumer protection, innovation and the like.  Regulated entities (such as insurers) are, in turn, allowed a reasonable measure of flexibility to facilitate innovation and competition, while being bound by the principles.  It is essentially saying: as long as you respect the principles and ensure the intended regulatory outcomes, you have leeway as a business to find innovative ways to get there.

This article lacks scope to delve into the minutiae of the differences between the draft rule and the existing Regulation.  Plus, our focus here is on the broader business strategy, innovation, and transformation implications.  In broad strokes, we support the approach FSRA has taken so far.  To illustrate, consider the following example (though, this example should be not relied upon, and FSRA will offer further guidance and examples).  

Take the auto accident scenario, and recall Bill 229 (Schedule 22) reforms.  It could be that insurers innovate and digitally make simpler, easier, and quicker the process to complete and deliver claim forms.  This is a topic worthy of special focus in itself.  Suffice it to say, one interpretation is that digital innovation in this area is permissible, following Bill 229 and the principles-based direction that FSRA is embracing, including in its draft UDAP rule.  

The interpretation is that such innovation is permissible as long as, say, it does not violate principles of transparency; is not misleading; does not work against consumer interests; is not unfairly discriminatory; does not amount to anti-competitive practices; and does not breach other laws.  Indeed, the interpretation is supported by the fact that the principles expressly emphasize the importance of timely communications, and fair, simple and accessible claims handling.

For Ontario’s – and in turn Canada’s – economy to thrive, and for its people to be better cared for, regulatory reform that enables fair competition and principles-compliant digital improvement is a very welcome development.  Feedback on the draft UDAP rule is due to FSRA by March 18.  Members of the public should lean in and, in this author’s humble view, support the innovation-friendly reforms.

DISCLAIMER:  This article is a general comment from a business strategy perspective only.  It is not, and should not be relied upon as being, legal advice.

Opportunities are ripe for winning strategies in the new environment  |  Seize the new.  Email us at info@cnconsulting.ca.