InsurTech and the online sale of insurance: Quebec’s regulatory framework now known

Last May 15, the Autorité des marchés financiers (Authority) made the final version of the Regulation respecting Alternative Distribution Methods (the Regulation) available. The Regulation governs the distribution of financial products and services by firms and independent partnerships without the intermediary of a natural person (distribution over the Internet), and also applies to distribution through a distributor. The Authority simultaneously published the Notice relating to the application of the Regulation respecting Alternative Distribution Methods (Notice), which specifies how the Authority intends to apply certain provisions of the Regulation. 

It is important to recall that last October 10, the Authority held a public consultation (that included, among other things, a public information session) regarding its draft Regulation. We published an information bulletin on the subject at the time, which can be consulted here. Several players from the financial services industry took advantage of this forum to highlight some of what they perceived to be the issues raised by this draft.  

With a few weeks left before most of the Regulation’s provisions come into force,¹ this would be a good time to take stock of the regulatory framework finally retained by the Authority in the wake of the many comments it received during its public consultation.

First, the Regulation and the Notice clearly state that the Authority does not intend to restrict the nature of insurance products that may be distributed over the Internet, despite the many protests voiced on the subject. We are of the opinion that the latitude afforded by the legislative and regulatory framework appears to be partially mitigated by the fact that distribution over the Internet remains subject to the same legal and regulatory obligations as those that apply to distribution through a representative. In other words, distribution over the Internet will need to adapt itself to the obligations imposed on the various types of insurance products while ensuring that the clients’ needs are still met. Developing technological tools that meet these criteria in the case of more complex products will be no mean feat. Consequently, the explanations given at the time of offering a product that will likely impact a client’s estate over a longer period (such as certain types of life insurance) will need to be more detailed than those given for standard general insurance products with more limited effects and shorter terms. 

This being said, it would appear that the concerns aired by certain stakeholders on the subject nevertheless resonated with the Authority. In its Notice, the Authority insisted it would “ensure that the measures taken by firms are consistent with the types of products offered via the Internet”. On this point, the Insurers Act² (the Act), which notably allows the Authority to require an insurer to cease dealing an insurance product over the Internet, appears to grant the Authority all of the tools it needs to meet this objective.  

What is more, the numerous amendments made to the final version of the Regulation suggest that several other comments were picked up by the Authority, the most notable example being that the enrollment in a group insurance, annuity and pension plan contract are no longer subject to the Regulation. The regulator no doubt preferred that products requiring a high level of expertise continue to be offered by qualified individuals for the time being.

Furthermore, only transaction sites that enable clients to enter into contracts will now be subject to the obligations set forth in the Regulation. The Notice also specifies that the Regulation does not cover firms that direct clients to other firms or firms systematically requiring that a representative conclude the transaction. However, the moment a firm enables contracts to be entered into through its digital space,³ it must comply with the Regulation.  

Finally, it would also appear from the Regulation’s final version that the requirements that information be visible at all times on the digital space were considerably relaxed. We believe this amendment should facilitate the development of mobile apps. 

Other changes made to the Regulation’s final version include the multiple additions clarifying the legislative and regulatory framework that applies to distribution over the Internet. For example, a provision was added to the Regulation detailing the obligation requiring firms to be able to detect and interrupt any offer of a personal insurance contract that is likely to result in termination, cancellation or reduction in benefits of another insurance contract if the digital space on which the transaction is taking place is unable to comply with the regulatory requirements applicable to such matters.⁴ In the same vein, the Regulation’s final wording⁵ now requires firms, as soon as a contract is entered into through a digital space, to inform clients that they have a 10 day cancellation right if no representative interacted with them at the time they entered into the contract.⁶

Although the transaction traceability provisions did not undergo substantial changes in the Regulation’s final wording, we stress that firms do have an obligation to make sure that all information collected from clients through the digital space and, where applicable, through a representative, must be entered in the client record. On that note, the Notice seems to suggests that the Authority will be making certain specifications available on the good practices it expects to see adopted in terms of the governance of technological tools.

As it turns out, the public consultation held last autumn and the ensuing exchanges allowed the Authority to develop a regulatory framework which appears to promote the development of new, innovative business models based on cutting-edge technologies, while honouring its mission to protect the public. Now that the door has been opened, it remains to be seen whether the various industry players will be able to develop technological tools that will satisfy the regulatory burden stipulated in the Regulation while remaining user friendly for clients.