- Updating the advisor disclosure template
- Replacement disclosure reminders
Updating the advisor disclosure template
When a consumer is considering the purchase of a life or health insurance product, it is important that they have good information about the product, how it meets their needs, the company offering the product, and the advisor and the advisor’s business relationships. Your disclosure document focuses on disclosure about you which should be given in writing to the client prior to the sales transaction.
The industry reference document has been updated. It provides commentary and suggested wording, using plain language, for the seven key disclosure items that should be included:
- licence and jurisdiction
- company(ies) the advisor represents
- nature of the relationship with the company(ies) represented
- how the advisor is compensated
- if the advisor is eligible for additional compensation
- conflicts of interest
- consumer’s right to ask for more information
The suggested wording for each disclosure requirement on the updated BridgeForce template is intended to provide a good starting point. You can, of course, tailor it to suit your own situation while still meeting the minimum disclosure requirements. Regardless of what disclosure is made and how it is made, advisors should have documentation in their client files that provides evidence that the appropriate disclosure has been made.
Adherence to these disclosure practices supports the principles for managing conflicts of interest adopted by the Canadian Council of Insurance Regulators (CCIR) as well as specific regulation, for example in Ontario, where providing written documentation of conflicts of interest is a statutory requirement.
Replacement disclosure reminders
One of the statutory requirements FSCO is looking at during their advisor audits is replacement disclosure.
Generally, the law requires that you:
- Obtain (as part of an application for a contract of insurance) a statement signed by the applicant, which indicates whether replacement of a contract of life insurance is intended
- Where the replacement of a contract of life insurance is intended and prior to accepting an application for a contract of insurance, complete and sign:
- a life insurance replacement declaration (LIRD), which requires you to provide
- a written explanation of the advantages and disadvantages of replacing the contract of life insurance
In Quebec, to replace an insurance contract (including living benefit products), the representative must complete several documents and explain each to the client, including the needs analysis, Notice of replacement of insurance contract(similar to the LIRD) and an insurance proposal.
When completing the LIRD , remember:
- There is no need to answer each question expressly in the written explanation but you can use the questions as a guide to the preparing the explanation.
- If you choose to answer each question separately, care should be taken to ensure the answers relate specifically to the client’s needs and the product’s features. Simple “yes” or “no” answers to the questions will not generally be sufficient.
- The written explanation should:
- be brief and use non-technical language that is meaningful to the average consumer.
- relate to the client’s needs, explaining how the existing policy fails to address those needs and how the new policy is better suited to address them.
- identify any risks associated with replacing the existing policy.
- within three business days of completing the application to replace a life insurance policy, copies of the completed documents must be provided to the existing and/or new insurer.
The Compliance section of the BridgeForce website contains helpful information about your obligations, including a reference document that will guide you through preparing the written explanation of advantages and disadvantages required for the LIRD as well as providing some sample written explanations. The reference document also contains a summary of delivery requirements (for the client, new insurer and existing insurer) for all jurisdictions in which the LIRD is accepted or required for replacement disclosure; refer to appendix 1.