Could P&C self-regulation create adjuster mobility?

A combination of Canada’s trade dispute with the U.S. and increasing frequency and severity of natural catastrophes (NatCats) could boost efforts to reconcile regulatory divisions in the P&C insurance industry.

“The natural disasters happening over the past few years shed light on this. It’s hard to ignore those issues, the shortage of professional [adjusters] and delays,” says Tim Pavlov, a senior associate in Stikeman Elliott’s Financial Products and Services Group.

“We’re getting some attention to this point. We have an opportunity right now to proactively address it.”

And momentum is coming from a surprising source — disappointment over recommendations from the Canadian Insurance Services Regulatory Organizations’ (CISRO) options for harmonizing adjuster labour mobility. Comments from P&C industry professionals say CISRO’s Principles for Adjuster Authorization During Natural Catastrophes and Disasters fall short of the firm guidance needed to quickly deploy industry workers following NatCats.

Regulatory conundrum

Pavlov stresses the root of the issue is Canada’s constitutional framework, which creates a hybrid model of insurance regulation. The Office of the Superintendent of Financial Institutions (OSFI) is responsible for the prudential regulation of federally incorporated financial institutions, and each province is primarily responsible for market conduct, which includes regulation of insurance intermediaries within their borders.

“Regulators are administrative bodies and they’re creatures of the statute,” Pavlov says. “Each regulator derives its powers from its enabling legislation and can act only as authorized by that legislation. That defines their scope of jurisdiction. They cannot really do anything outside of it.”

CISRO’s guidelines appear watered down because the organization “cannot really issue any binding rules…that would have a force of law,” he adds.

Which means it’s up to each provincial and territorial regulator to adopt and enforce any guidelines. One example of that happening is CISRO’s and the Canadian Council of Insurance Regulators’ recommendations on fair treatment of customers. Made in 2018, those recommendations were eventually adopted by most provincial regulators.

Outside forces also bring pressure. In response to U.S. trade actions, Ontario passed legislation to allow certified professionals from other provinces that work in 50-plus regulated professions to work in Ontario within 10 business days of submitting their credentials for validation by provincial regulators.

“Insurance agents, adjusters [and] brokers would fall within the scope of that legislation,” says Pavlov. “Now we can have an adjuster from Saskatchewan come here to Ontario and, provided the adjuster is in good standing, [they] can start adjusting claims after FSRA grants an Ontario licence.

“It doesn’t happen instantaneously. There is still some process to go through. But before that [law] it would have taken months for that person to get a local license in Ontario. Now it’s been reduced to 10 business days to go through the proper process and ensure that the person is licensed in their home jurisdiction.”

How about an SRO?

There are other harmonized supervision models insurance regulators can look to, Pavlov says, such as the Canadian Investment Regulatory Organization (CIRO). Created in 2023, it combined the Investment Industry Regulatory Organization of Canada (which oversaw investment managers holding full securities licenses) and the Mutual Fund Dealers Association (which previously set rules for sellers of packaged investment products).

“I think a similar concept could be considered in the insurance industry,” he says. “It’s not going to be a federal regulator, but it would be one regulator that would govern insurance intermediaries across the country.”

For that to happen, he adds, provincial regulators would have to delegate some of their authority to another regulatory body (for example, a self-regulatory organization).

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“Securities regulators [that created CIRO] delegated certain powers to the self regulatory organization, comprising of the industry participants, and gave them authority to license, regulate and enforce certain rules in the industry,” Pavlov says.

It won’t be as simple for insurance regulators because not all of them have delegatory powers written into their enabling statutes, so certain amendments for insurance legislation would be required.

“After I presented this [idea at a] conference earlier this year, at least one regulator showed some interest, and I understand there may have been at least some behind-the-scenes discussion on the topic among provincial regulators,” he says.

“There are advocates, and there are critics of the self-regulatory model, but I think [it’s] definitely something to look into.”

Phil Porado

Phil, an award-winning journalist with over 30 years of experience in financial topics, has been managing editor of Canadian Underwriter for more than three years.