Regulators watching how broker sales tied to compensation

Canada’s insurance regulators are paying close attention to how insurers are assessing the performance of their sales force and/or linking broker compensation to the fair treatment of consumers.

In particular, they are monitoring whether brokers are being assessed using purely quantitative criteria such as increased premium volume.

Canadian Council of Insurance Regulators (CCIR) numbers show this seems to be on the rise. For instance, a CCIR market conduct report published in December observes how “premium volume has historically been the most prevalent factor in [the property and casualty and life insurance] sectors….a trend that continued in 2022.”

Canada’s P&C insurers, the CCIR data show, are increasingly considering many other factors that contribute to incentives or commissions — such as consumer satisfaction surveys, claims volume, the number and type of consumer complaints, and policy cancellations. All of these factors are played a greater role in broker compensation in 2022, the numbers indicate.

But insurance regulators are keenly focused on the fact that almost half (46.9%) of P&C insurance companies say the growth of premium volume is a measure of broker success and compensation.

Related: Same rules apply to brokers/insurers designing incentives

“CCIR refers insurers to the Incentive Management Guidance [published in November 2022], which sets out expectations for the management of incentive arrangements related to the sale and servicing of insurance products, with the goal of ensuring any such arrangements achieve FTC [fair treatment of consumers].”

The Incentive Management Guidance lists a number of examples of performance review criteria that may increase the risk of unfair treatment of consumers:

“Performance criteria primarily aligned with quantitative objectives.” [e.g. Increased premium sales volume.]
“Sales contests, sales quotas, bonuses and non-monetary benefits that are based on sales of specific products over limited period of time.”
“Contests, campaigns, promotions, loyalty or recognition programs that are designed to increase sales volumes or meet other quantitative targets to obtain bonuses, rewards (e.g., titles, gifts, goods, hospitality, trips) or privileges (e.g., access to services).”

In the life and health insurance sector, performance is more often based on the factor of premium volume (67.9%) than it is in the P&C insurance sector (46.9%). But in both industries, it is the highest factor.

However, the P&C insurance sector has seen an increase across the board in other performance factors ties to the fair treatment of consumers.

For instance, claims volume factored into broker performance reviews only 19.6% of the time in 2022, whereas two years later, it was a factor for consideration 33.1% of the time.

And the percentage of insurers who measured broker performance based on consumer satisfaction surveys jumped from 14.1% to 23.1% over two years (from 2020 to 2022).

Policy cancellations now also figure in broker performance reviews – up from 7.4% in 2020 to 11.9% in 2022.

And last, but not least, consumer complaints increasingly factored into broker performance. This was true 6.1% of the time in 2020 and is now a factor in 9.4% of broker evaluations.

Feature image courtesy of iStock.com/Inside Creative House