Doing business with unauthorized insurers
Published December 12, 2022
There may be instances where licensees are asked to place a client’s insurance business with an insurer who is not authorized to conduct business in British Columbia when the necessary coverage is not available from an authorized insurance company or if coverage from an authorized insurer does not meet the client’s specific insurance needs.
Before licensees proceed to conduct business with an unauthorized insurer, there are specific requirements under Insurance Council Rules, the Financial Institutions Act (the Act) and the Insurer Exemption Regulation that licensees must meet. Notice ICN 21-001 Use of Unauthorized Insurers outlines the regulatory requirements for licensees when placing business with an unauthorized insurer, some of which are highlighted below.
Licensees must not directly or indirectly solicit the client for the contract of insurance with an unauthorized insurer. The client must specifically direct a licensee to seek placement of the client’s insurance with an unauthorized insurer. Before engaging in negotiations with an unauthorized insurer on a client’s behalf, the licensee must ensure the client understands and accepts the risks and responsibilities associated with insurance transactions involving unauthorized insurers.
Council Rule 7(11.1) sets out licensees’ notification requirements when placing business with an unauthorized insurer, as well as a licensee’s responsibilities under section 6(1) of the Act. Licensees are required to:
- Notify the Insurance Council in writing that they intend to rely on section 76(1)(c) of the Act prior to completing a transaction with an unauthorized insurer.
- File with the Superintendent of Financial Institutions a Placement of Insurance with Unauthorized Insurers Return within 30 days at the end of each quarter.
- Hold all premiums collected in a trust account established with a Canadian financial institution.
The BC Financial Services Authority (BCFSA) provides a list of authorized insurance companies on its website, as well as publishes information and forms regarding the use of unauthorized insurers.
In addition to explaining the rights and responsibilities associated with unauthorized insurers, licensees must obtain written consent from a client before negotiating with or procuring insurance from an unauthorized insurer. A licensee must make the following specific disclosures to the client in writing:
- why the necessary coverage cannot be obtained through an authorized insurer;
- the risks involved with dealing with unauthorized insurers, including but not limited to risks associated with an unauthorized insurer’s financial condition or credit worthiness;
- the consequences to the client if:
- a claim is not paid by an unauthorized insurer or,
- the unauthorized insurer ceases to do business;
- the courses of action available to the client if an unauthorized insurer does not pay a claim or ceases to do business;
- the responsibilities of the client arising from a transaction with an unauthorized insurer, including but not limited to the responsibility to pay the insurance premium tax to the provincial government and,
- any other information that may impact the client’s decision to purchase insurance with an unauthorized insurer.
To learn more about the regulatory requirements for licensees placing business with unauthorized insurers, review notice ICN 21-001 Use of Unauthorized Insurers
. If you have any questions, please contact our Practice and Quality Assurance Team at firstname.lastname@example.org
or call 604-695-2008.