Despite a somewhat rocky narrative surrounding the Canadian Life and Health Insurance Association’s (CLHIA) plan to establish industry standards for compensation disclosure – it still provides a very unique opportunity to level-set on many antiquated areas.
Guideline G19, Compensation Disclosure in Group Benefits and Group Retirement Services made waves in the benefits community this past year as it aims to put a plan in place for benefits advisors to disclose to plan sponsors anticipated direct compensation for new sales for group benefits and group retirement services.
What seemed like it could be an open and shut process has become a bit more difficult than originally anticipated. And while the industry as a whole will be affected – it’s important that benefits advisors take this time to flesh out all of their concerns and opinions as we head closer to a unified agreement.
Why G19 is being implemented in the first place
G19 is essentially a response to international and Canadian regulations that focus on strengthening the industry’s practice around compensation disclosure. The underlying issue is to remove any kind of conflict of interest by being customer focused and transparent with clients regarding compensation.
The CLHIA is worried that some advisors might be placing their best interest first above the clients, and pair a client with an insurance company that will pay the highest bonus.
This guideline could also be referring to employers or any other organizations that fall under these group benefits and retirement services, with more of the attention being focused on getting the latter done first.
Under the proposed guideline, insurers will have to disclose direct, in-direct and other forms of compensation over $500 paid to advisors in a written report and provided to plan sponsors annually. The costs for an advisor’s services need to be made totally clear to the plan sponsor, focusing on an overall assessment. As well, the cost of services provided by an insurer or supplier using a direct-to-client business model should be totally transparent.
Will this commoditize the benefits industry?
Understandably, this has caused a bit of a stir under the perceived fear that brokers will have to start undercutting their value because plan sponsors might just go to the cheapest provider on the market. There is also the concern that they will be cut out of the picture if insurance companies can work directly with clients through web-based sales.
I believe the brokers that only show up once a year to check in with their clients ahead of renewal will be the ones that get hit the hardest, because they’ve done nothing to strengthen the relationship by providing further counsel. Same with the ones that are limited to only having existing relationships with two insurance providers.
Here’s what I would like to see happen
In order to ensure that the insurance company is best for the client, disclosure has to be done in a thorough process, meaning all the stakeholders involved; employers, insurance companies and brokers. The disclosure of these costs will ensure they’re making an informed decision, rather than an assumption, creating a fairer market overall.
Now when you think about how highly regulated automotive and home insurance is with their standardized commission rates, you wonder why that doesn’t extend over to benefits. I would like to see a type of industry-standardized scale so we all know what’s fair in terms of benchmarking compensation.
- It should be provincial regulators setting the proposed guideline rather than insurance companies.
- Finalize a standardized commission scale, so benefits advisors don’t get undercut by a few percentage points,
- Disclosure is completely fine, but advisors should control process,
- Allowing advisors to maintain and own the relationship is a MUST,
- Everyone in the value chain should have to equally disclose (carriers, intermediaries, individual reps, etc.)
- The process should minimize additional overhead.
So while benefits advisors have been making it perfectly clear that when it comes to developing compensation disclosure guidelines – they not only need to be a part of the conversation – they need to actually be heard.
Regardless of how and why this whole process started is now a moot point. Consultations have been happening all across Canada, so it’s important that everyone works together on the new standards being tabled in order to build towards a unified decision.