A report by panels of consumer and industry experts
July 1996



This report is the result of a study by TEAMmakers inc.,
conducted for CIBC Insurance®, to examine marketplace practices in the Canadian insurance
industry from the perspective of the consumer.

Two expert panels were selected, one composed of consumers
with a specialized interest and experience in insurance; the other composed of current and
former industry professionals who were interested in helping to develop a new paradigm for
marketplace practices. Short biographies of the panelists are included at the end of this report.

The objective was to establish what, in the views of the
expert panels, consumers really want and to analyze how feasible their requests are.

The panelists were all supplied with the same background
material from a international research scan, and an exhaustive agenda. Each panel met
separately for two full days in April 1996, aided by a facilitator and an independent
chairperson. They discussed a wide range of similar topics, and made a number of specific recommendations.

The two panels then came together for a half day, shared
their findings and made a number of joint recommendations. This report focuses mainly on
their joint recommendations. There was a remarkable degree of consensus between the two
panels, a fact noted with some surprise by members of both panels. All members of the
panels have approved and signed the report.

The entire study was funded by CIBC Insurance®, but was
conducted as an arms length project by TEAMmakers inc. No employee of CIBC or CIBC
Insurance attended any of the panels. Participants were given complete freedom to discuss
any issue and to express any opinion. They were paid an honorarium for their services.

It is hoped this report will be useful both to consumers
and the industry in facing up to and preparing for the insurance marketplace of the 21st century.

Peta Lomberg and Donna Stevenson

TEAMmakers inc. July, 1996



Industry Panel Consumer Panel
Lawrie Savage, Chair
Herb Beiles
Ted Belton
John Carpenter
Herb Hickling
Jim Jasper
Robert McCormick
Bill Weafer
Stuart Morley,Chair
Helen Anderson
Joyce Feinberg
Joan Huzar
Sally Praskey
Dick Vosburgh
John Watkin

The project was sponsored by CIBC Insurance Company®.

It was developed and managed by TEAMmakers inc.

David Yudelman wrote the report.


The consumer and industry panels were asked initially to
help define a new paradigm for insurance marketplace practices. It rapidly became clear,
however, that consumers are not primarily concerned about the mechanics of marketplace
reform. From their viewpoint, changing or reforming market practices is a method, not an
end in itself. Consumers essentially want security, choice, affordability and convenience
and it is the responsibility of the industry and others to resolve how these goals are
met: by regulation or deregulation, by codes of practice or by wide-open competition.

Broad consensus was reached between the panels on the
fundamental issues and recommendations. Insurance is seen as an industry struggling to
keep up with the needs of customers in a radically changing world. It is unique in many
ways, but is also part of seemingly irresistible trends transforming every aspect of our
lives, such as the rapid introduction of new technology and the unbundling of services.

There are significant differences within the industry, such
as the division between life insurance on the one hand, and property and casualty
insurance on the other; but to most consumers this is an industry distinction of little
relevance to them. Nevertheless, some examples of situations mentioned are specific to
either life or general insurance, but not both.

The differences between consumer expectations and industry
performance are outlined in the Identifying the Gaps section of this report.
The panels agreed that the insurance industry world-wide has been slow to adapt to the
needs of the new consumer and the trend toward unbundling, compared to financial services
generally. Changes in the insurance industry in the United Kingdom, Australia and New
Zealand are being watched closely in North America and other OECD countries, and were
constantly referred to as possible models for the Canadian insurance industry of the future.

It was therefore agreed that the priority for the insurance
industry today should be to find out first what the customer really wants and needs in a
changed world, and then to come up with innovative ways to provide it.

To simplify its task and try to help the industry achieve
these goals, the panels asked three fundamental questions throughout the discussions:

1. what do consumers want?

2. what is the gap between this and what the industry delivers? and

3. what do we recommend be done?

Furthermore, the panels agreed that these three questions
be focused on the following categories:

  • education and information
  • openness and disclosure
  • service
  • choice
  • fair practices
  • redress

The discussions of these six issues constitute the bulk of
this report, and are detailed in the Recommendations: Closing the Gaps section below.


Overall, the panels focused on the contrast
between the expectations of consumers and the actual performance of the industry. This
section identifies 10 major problems in the insurance industry in Canada which seem to lie
behind specific issues. These are the areas in which change is essential if the industry
is to make the paradigm shift necessary to adjust to radically new challenges facing it.


Recent developments such as insurance company failures, the
“vanishing premium” problem experienced with some whole life policies, the rapid
increase in auto premiums during a time of minimal inflation, lack of service from brokers
and agents, and the perceived abuse of the Facility Association have all contributed to
increased consumer distrust toward the industry. Coming in a climate of increased
scepticism and far more demanding consumers, this “trust gap” has the potential
to grow and pose really serious problems for the industry.

If the industry is to close the trust gap, it has to
resolve contentious issues with consumers. It does not have to give customers everything
they ask for, but it does have first, to ensure that it is not acting contrary to the best interest of its
customers; and second, to be able to show customers that the industry is working for the consumer.


Customers find it very difficult to understand what they
are buying. Insurance remains an infrequent, complicated and low interest purchase for the
overwhelming majority of consumers and they find it very difficult to become knowledgeable
buyers. Consumers do not understand the product, its pricing or other aspects of the insuring process.

The industry has compounded the problem by failing to
simplify and demystify its products. Consumer ignorance and industry complexity puts the
industry disproportionately in control of the sales process, and also heightens the trust gap because of a growing
lack of confidence that the industry is able to understand and take care of the consumer’s basic needs.

The solution is for the knowledgeable seller to focus on
knowing customers’ needs as well as the intricacies of a wide variety of policies; and for
the inexperienced buyer to be provided with the tools to make educated purchases. A good
starting point is consumer education about the basics of insurance. Companies and agents
should provide useful and understandable consumer information in plain language at
appropriate times to demystify and explain the insurance process; companies should produce
simplified products, also written up and explained in plain language.


Customers’ needs have changed, but products have not kept
pace. Companies and agents continue to be psychologically trapped by traditional products,
such as bundled home insurance policies, containing coverage that consumers do not need.
The industry has too often lost sight that to succeed it has to solve customers’ problems
rather than force-feed them the closest appropriate products.

The industry sees itself as selling a legal contract which
provides indemnity in accordance with narrowly defined terms. By contrast, the consumer is
looking for specific solutions to specific problems.

The industry needs to change its perspective by
constantly placing itself in the shoes of the customer. It needs to approach everything —
from the product design to the sales process, from claims to redress — from a consumer’s
perspective. It has to shift its entire perspective to one of “providing
solutions” rather than selling indemnity. Doing this will enable it to understand the
perspective and needs of the consumer far better, and close the confidence gap. This
sounds simple, but it actually requires a revolutionary change of perspective and the
ability to learn from others, such as credit card companies and gas utilities, which have
made the leap to become centrally focused on service.


The product-driven mentality of the industry has made it difficult for it to focus sufficiently on
assisting customers to find the right product for their particular situation.

One major solution is to develop better techniques of
needs analysis; better questions for the seller to ask the prospective buyer; better
matching of the answers to what is available in the entire market; and better explanation
of the recommendations in the language of the consumer. The consumer-friendly company and
agent should develop sales approaches that focus primarily on assessing the consumer’s
needs, to the point of recommending products other than insurance if that is best for the
consumer. If a customer would benefit more from contributing to an RRSP than to life
insurance at a particular stage of his or her life, it would be short-sighted and
ultimately self-destructive for the industry to recommend otherwise.


The products sold by agents often offer financial
incentives which would encourage them to sell the product which may not best fit the
consumer’s needs. For example, a whole life policy pays a far larger upfront commission
than a term policy, but — in terms of the needs of the consumer — might be inferior to a
term policy augmented by an investment strategy.

Agents who want to be trusted and inspire confidence
will have to treat the consumer’s interest as paramount, and be seen to do so. The
industry will need to play an active part to make this happen by aligning its incentive
systems to ensure they do not reward practices which are contrary to the interest of the
customer. Consumers may want the choice of paying brokers or agents a fee, as is done with
certain financial planners, to avoid possibility of conflict of interest


Traditionally, agents or brokers regard the policyholder as
their customer, not the insurer’s customer. Many companies are therefore distant from the
end-users and unable to empathize with their concerns. Agents, brokers and companies tend
to hide behind each other in dealing with customers, particularly in uncomfortable
situations such as premium increases, cancellation of policies or servicing claims. Agents
frequently blame the company for any problems, just as the company can force the agent or
broker to take the blame when there are premium increases or poor claims service.

Both companies and brokers need to be made more directly
accountable to consumers. Instead of fighting over who owns the customer, they should both
be competing to be pre-eminent in looking after the customer’s needs. Companies which
fully control the sales process do not have to contend with the rivalry with agents and
brokers, but they still have to succeed in their basic tasks: ensuring that customers’
concerns are taken into account and well served.


Many insurance companies view themselves merely as a
vehicle for spreading risk, while allowing costs to flow through in the form of premium
increases and making little effort to control the fundamental processes leading to higher premiums.

Companies which are seen to make an active effort to control things like fraud and repair costs
in order to keep down expenses will gain the trust and confidence of consumers.


The industry has generally run with a high expense factor,
including a high cost of distribution. It is a process-oriented industry and has had
little success to date in harnessing technology to help drive down costs and increase customer service.

Companies that are able to operate more efficiently will
be able to provide their products at a price that would be difficult for the competition
to match. New entrants into the industry will be able to operate with a lower expense
ratio as they are not hobbled by outdated technology or other processing procedures.


Creating unreasonable expectations almost inevitably
backfires. It is not enough to proclaim a new-found interest in the consumer and to
promise a more customer-friendly approach to the business. From time to time, insurers
have vowed they will take more of a consumer focus in their approach to the business. Very
few have done so, resulting in extremely low credibility ratings from the public.

Companies and brokers who want to be successful in the
insurance markets of the 21st century will have to do more than increase their focus on
customer satisfaction. They will have to make it a core organizing principle of their organization.


High tech is generally seen as being the opposite of
intensive, face-to-face service (“high touch”). But these should in fact be seen
as mutually dependent: without high tech, there is no possibility of really widespread and
excellent customer service in an era of increased complexity of products and downsizing of
work forces. Consumers tend to think they need more and better focused personal services
to satisfy their concerns with the industry, while the industry thinks the solution is to
be found in technology and better electronic communications.

Perhaps both the consumer and industry are right.
Technology will enable service to be provided at an affordable cost. Consumers will not
necessarily insist on access to a single person knowing all their history and needs,
provided that they can be sure that they can get equal service from a team of people,
without the need to provide a new briefing each time. Since one individual could not be
expected to be available at all times, most consumers would be quite prepared to settle
for the team approach aided by technology allowing team members to access all their
records and needs instantly on a monitor, and provide the advice needed without delay.


There was a strong sense in both panels that the insurance
industry in Canada is at a crossroads. It is currently in a state of flux and consumers
are frankly sceptical that the industry holds their interests paramount. On the other
hand, both consumers and industry observers are optimistic that technological changes are
providing an unmatched opportunity for the industry to retool for the 21st century …but
only if the technology is fully integrated and has a strong service orientation.

This section brings together the detailed suggestions of
both panels for closing the gap between the knowledgeable seller and the inexperienced
buyer. It is loosely focused around the categories Education and Information; Openness and
Disclosure; Service; Choice; Fair Practices; and Redress.


Education and information are seen as the bedrock of all attempts to close both the “trust
gap” and the “knowledge gap” between consumers and the industry discussed in the key themes above.

The insurance industry should be involved, either directly or indirectly, in basic consumer

Many consumers need to be taught why and when it’s
advisable or compulsory to insure against risk. Consumers therefore need certain basic
education before the launching of information programs about insurance.

The insurance industry might choose to be directly
involved, or it might choose to work with existing educational institutions. It is
probably in a good position to conduct needs assessments, asking different groups of
consumers what their needs are for particular segments of the market. The industry and/or
companies should consider arms length funding of independent consumer organizations.

Consumer education should capitalize on “teachable
moments” emerging through the insurance life cycle

Insurance is an infrequent purchase. Most people who buy it
seldom think about it again until the time of making a claim. It tends to be a reluctant
purchase with little or no pride of ownership. For these reasons it is not easy to educate
people about insurance. Between 15 and 20 percent of the population are “information seekers” who will
respond eagerly to insurance education. The rest will have to be reached in innovative ways.

Insurance is life-cycle related and there is a tendency to
buy it at particular stages of life for particular reasons. Therefore it is suggested that
consumer education capitalize and focus on “teachable moments”. Teachable
moments are those phases in the insurance life-cycle when individuals will be particularly
amenable to learning about the rationale for insurance and its importance to the
individual. For example, 16-year-olds anticipating getting their drivers’ licences and
facing the need to obtain compulsory insurance tend to be excellent learners on the
subject of car insurance. Most people learn best when close to the need. But the industry
has shown little interest in putting itself in the shoes of new customers, and has made
little attempt, for example, to link up with young driver courses to educate potential new users.

The insurance companies and brokers should be leaders in educating the public about insurance

The industry often makes products excessively complex,
either through habit and lack of rigour, or because it enjoys the benefits of the large
gap between the knowledgeable seller and inexperienced buyer. But knowledgeable consumers
will be fundamental to the new (unbundled and technologically-intensive) insurance
industry that is likely to emerge in the next few years, and to be dominant in the 21st
century. Education programs are not “quick-fix” solutions, but they can have
powerful long-term affects on societal trends and structures, and important impacts on the
reputation and even the bottom-line of the insurance industry.

Companies who assist the general public – or, more
particularly, young people – to understand the principles underlying insurance products
and their pricing would stand to gain credibility in their communities.

Social change can be and has been brought about by
educating people that, for example, drinking and driving is anti-social, or that smoke
detectors save lives. Similarly, education could bring about social change in areas such
as safe driving and claims fraud. Such change could make insurance more affordable for
all, and would repair consumer trust in the industry.

Information should be written in plain language, and so should insurance policies

Plain language has at least three advantages: it builds
trust among consumers by making them feel empowered; it increases employees’ morale by
helping them develop a better understanding of the products they are selling and more
confidence in explaining them to customers; and, as it pervades a company’s policies and
practices, it simplifies and rationalizes all aspects of its operations. All contracts
should be written in plain language and consumer tested for intelligibility, and the plain
language version should be the legally applicable version.

Information should be comparable

Information should be set out in such a way as to
facilitate product and price comparisons. Although the best way to achieve this would be
industry-wide agreement on criteria to be compared, individual companies can provide much
valuable comparable information and would probably benefit from increased consumer trust
if they did so. A suggested model was a U.S. company which provides the names of the five
lowest priced companies when requested for a quote.

Information should be complete and accurate

Many consumers do not realize that brokers represent a
limited number of companies with whom they have contracts. Brokers should tell the client
which companies they represent and clarify that they have not shopped the entire field of
insurance providers. This is a vital service to consumers, and if it is not made available
the result is cynicism, distrust and refusal to believe there is any way to shop intelligently for insurance.

This may make for an easier initial sale for the agent or broker, but it causes a variety of
problems at later stages of the process, for example with claims, renewals and applications for redress.

Information is a tool to improve the relationship between the industry and the consumer;
misinformation will backfire in a way that is costly to the industry as well as the consumer.

Information should be used to impart a better understanding of the process

Information should not be confined to helping consumers
discover their needs and what to buy; it should also be used to explain the process. Once
consumers understand how the first sale works, and renewals, and claims, and redress, they
are far more likely to be satisfied customers. Information is therefore a valuable
mechanism to manage expectations and build trust.


Consumers feel that if companies and
agents disclosed their conflicts of interest frankly and clearly to the consumer, it would
be far easier for both buyer and seller to ensure that the consumer’s best interests were
being looked after. Greater openness and better disclosure would also help consumers
directly in matching products to their specific needs, and be a powerful tool to dissipate
the widespread distrust being felt by a growing proportion of consumers.

Consumers should be encouraged to have high expectations of openness and disclosure

Companies should be required to disclose far more about
themselves. It would help consumers and improve their perception of the industry, if
companies made regular and detailed disclosure of such things as their financial health,
e.g., their T.R.A.C. and O.S.F.I. ratings; the number of claims made, denied and paid; the
time taken to settle claims; information about formal complaints lodged about companies,
agents and brokers; the techniques used to combat fraud and keep the price of premiums
down rather than to simply “pass through” the costs to the consumer; the
insurance sales and claims process; the questions to ask for consumers to assess their own risk.

Companies should also provide a better picture of the
benefits and features of the products offered; conditions under which a policy can be
voided, cancelled or a claim denied (consumers are particularly incensed at what they see
as frequently arbitrary cancellation of long-standing policies); and inadequate
explanation of cancellation and inadequate notice of cancellation. They should provide
advice about getting the most value from insurance (for example, with older cars, it may
not be worth paying a collision or comprehensive premium).

The aborted Canadian Insurance “Consumers’ Bill of
Rights” initiated by consumers and the industry in the early 1990’s, was a good idea,
and still is. Projects such as these give consumers the criteria to judge knowledgeably,
and the ability to distinguish between brokers and companies which provide excellent
service and those which are mediocre. Individual companies should provide their customers
with a Bill of Rights: consumers feel strongly that they have the right to know their rights.

Disclosure of sales commissions could be a powerful tool, but should be carefully weighed

Agents in both the United Kingdom and Australia must
disclose sales commissions and charges at the point of sale. One objective is to provide a
warning to the consumer should it appear that the commission or charges are excessive.

There would be some direct advantage in doing this, such as
the disclosure to the consumer that the agent is working for the insurance company and not
for his customer. It might also encourage companies to rethink their entire sales process,
and even their compensation system, to better serve the customer. It would be significant,
for example, if it showed the enormous difference in first year commissions between term
life and whole life policies. Or if it showed the assumptions built into premium
projections which have resulted in the vanishing premium phenomenon. The panelists agreed
in principle that disclosing sales remuneration at the point of sale, which is
increasingly being adopted in the U.S. and elsewhere, was a good idea. There was no
unanimity, however, on how feasible this would be to implement.

Full disclosure of the conditions, entitlements,
limitations and exclusions of all policies sold should be mandatory

Legally binding insurance policies written in plain
language would help make this a reality. Some consideration should be given to making it
compulsory for a broker or other seller to do an analysis of client needs and recommend in
writing which range of products are in the client’s best interest (similar to the
requirements on stockbrokers dealing in investments such as options). It was recognized
that in some instances the seller’s commission would be inadequate to cover the time spent.

Companies should make the Consumer Protection Plan better known

The financial health of individual insurance companies is
important, but not nearly as important as it would be without the “Consumer
Protection Plan” for Canadian Life and Health Insurance policyholders and its general
insurance counterpart, the Property & Casualty Insurance Compensation Corporation.
Consumers need to be informed of these plans, how they work, and how they should affect
their decision to select or renew an insurance company’s policy.

Consumers should have the right to see their own underwriting file

Just as consumers have the right to see their own credit
rating file, buyers of insurance should be able to see their underwriting file. In this
way they can check the accuracy of the facts, and see for themselves the basis on which the insurance rates are
arrived at. They can also use the opportunity to update information which might lead to rerating.

Consumers need to be informed of the benefit to them of disclosure

Disclosure works two ways: there is the need for disclosure
by brokers and companies; and there is also the need for full disclosure by consumers, for
example when completing an application form or filing a claim. Consumers need to
understand that lack of disclosure by a consumer will usually hurt other consumers as well
as the industry. Consumer responsibilities should be outlined clearly at the time of first
sale when the consumer’s needs analysis is done, not for the first time when a claim is
made. These mutual responsibilities should be reinforced at every stage of the insurance life cycle.

There needs to be disclosure (and information) at every stage of the process

Different types of information are relevant at the point of
sale, renewal, claim or redress procedures. People are most receptive and learn best when
the information is most relevant to them, and this should be taken into account at each stage of the process.


Because insurance companies tend to be
product-driven, they have not kept pace with the rapidly changing needs of consumers.
Whereas the industry sees itself as selling a legal contract of indemnification, the
consumer needs specific solutions to specific problems. Companies and brokers avoid
accountability by shifting responsibility to each other, and rarely live up to their
frequently repeated vows to be consumer-focused. And the industry too often sees
“high tech” and “high touch” personalized service) as two poles rather
than totally complementary.

Technological innovation should be used to give consumers direct access to industry experts

Consumers want to deal with knowledgeable people, but the
industry puts the least knowledgeable at the front end, and the most knowledgeable in head
office buildings, where they have little or no contact with consumers. State of the art
technology should be used to allow the consumer to interact directly with
centrally-located highly trained people at times convenient to the consumer.

Service should be available through a wide variety of
means to maximize customer convenience and reduce complexity

Consumers want a variety of services, including
information; assistance in selecting products that address their needs; convenience; and
“no hassle” service when they have a claim. But different consumers prefer to
satisfy these needs in different ways. State of the art technology which has a consumer
focus can provide a wide range of solutions. For example, a company could deal with direct
telephone inquiries through a call centre, it could facilitate requests for information
over the internet, it could provide information on its products and processes through the
media, it could use direct mail, or even arrange for its representative to make house calls.

Service should be pleasant, efficient, and available 24-hours-a-day

Companies which are able to get the most out of available
technology can ensure that customers who “want it all” are satisfied. Consumers
want to buy at their own convenience, when and where they please, and want to talk to a
live person, not a message machine. They want the age-old things: friendly, informed,
honest help focused on meeting their needs. They don’t want to have to look up their policy number.

The industry should start by selecting the right
personality types to do the job, but there is a great deal more it can do in setting up
the service process to ensure that the experience is a pleasant one for the consumer and a
profitable one for the company or broker. Companies at the cutting edge can set up systems
to ensure that help is always available. They can set up checklists to ensure the consumer is fully debriefed, and
that real information is available rather than the promise to mail a package of brochures later.

Service should be cumulative

Customers do not want to go through the process of
disclosing personal information to a stranger more than once. They also do not want to
repeat the same information several times as they are shuttled between different service
representatives. Technology now allows the industry to ensure that service is a cumulative
process by placing all customer inputs into a data base which is instantly accessible to
all service representatives. If customer contacts are networked and updated in real time
there will never be the need to repeat details on subsequent calls or interviews.
Therefore it would be an enormous plus and competitive advantage if all contacts with
customers were automatically linked to a data base containing the customer’s individual
file. This file should then be updated in real time, and become available to all service
representatives for subsequent calls.

Service should be geared to the stage of the insurance
process: whether buying, renewal, claims or redress

Buying: the priority emphasis should be a
straightforward process of determining the needs of the customer irrespective of the
seller’s needs, possibly using devices like checklists (manual or electronic); there
should be friendly, knowledgeable advice (well-trained brokers and/or handy technological
back-up by specialized material and product specialists); and there should be full, plain
language disclosure of product features, options and the process.

Renewals: all brokers or companies should
communicate directly with clients at renewal time; they should never simply send an
invoice. They should be backed by a system flagging information which will actively prompt
the contact person to tell the customer about new options and benefits. The opportunity
should be used to remind consumers of the process and the features of their policies; to
check whether their needs have changed; to update them on changes from the company side;
and to communicate new options and alternatives to them. Consumers are not indifferent:
for example, a U.S. company that sent an attachment with its invoice at renewal time
suggesting that the policy should be reassessed, received a 30 percent response rate.

Claims: it is very important that consumers be able
to call one number 24-hours-a-day at the time a claim becomes necessary. They need to be
able to find out what to do next, and how the process will unfold; and they need to know
immediately. The person they talk to should understand that this is a customer relations
as well as a future sales opportunity, rather than a disaster for the company, and his or
her attitude should reflect this. Though consumers would prefer to talk to one person only, they are glad to trade
this off if the alternative is efficient, cumulative and immediate round-the-clock service.

Redress: If the buying, renewals and claims
processes are conducted professionally, consumers will feel progressively less need for a
redress process. Similarly, the best redress process in the world cannot make up for poor
buying, claims and renewal processes. Nevertheless, consumers want a reliable and
user-friendly process to be available, even if only as a security blanket. Consumers are
not primarily concerned whether this process is self-regulated or externally imposed,
provided it is seen to be fair and even-handed, simple, inexpensive (or free) and quick.
It is acceptable to consumers that they should first attempt to resolve a dispute through
the company’s own mechanisms, provided that this process is not inordinately delayed, and
provided that if this doesn’t succeed, the next process of mediation results in a final
decision (see also REDRESS).

Service should come with performance guarantees.

The industry should imitate some of the better companies in
other industries by offering performance guarantees. Some examples, which would obviously
have to be revised in their details to make them appropriate to insurance: “delivery
in thirty minutes, or it’s free”; “stand in line longer than five minutes and
receive $5 in cash”; “if there is no price tag on the item when you get to the
cashier, it’s free”. Companies in the insurance industry which do not meet their own
published service standards might provide more coverage without charge; offer a premium
discount; extend a policy for as long as it took to settle a claim. Customers who
perform well (e.g. someone who is claims free for many years) might also be considered for
safe housekeeping recognition, or safe driving rewards.


In consumer codes of practice, choice is
regarded as a fundamental “right”; choice that is clear and accessible to all
consumers. Choice is not confined solely to choice of product. It should also extend to
choice of distribution method, methods of payment and service and access to information.
There is place, for example, for a broad range of sellers of insurance, for boutiques and
specialist stores, as well as supermarkets. Choice tends to be worthless unless it is
possible to discriminate between products and providers, and to know the exact extent to
which they meet a consumer’s specific needs.

Consumers should be given a real choice of product, not
a listing of a number of essentially identical products

Companies and brokers who claim to survey the field for
consumers should meet certain minimum standards in doing so, or they should disclose up
front that there are or might be products which better meet the consumer’s needs. This
ties in with the need for better needs analysis. Canada should emulate state-of-the-art
systems in the United Kingdom, where sellers are not allowed to offer the wrong
product for the customer’s needs. Customers who ignore advice and choose the
“wrong” product must explicitly sign-off that this was a deliberate choice.

Consumers also want choice in areas such as
distribution methods, access, methods of payment, service

There is more to choice than providing a variety of products. Today’s highly stressed consumers
want access to help and advice at all times. They want to be able to buy from brokers in their homes, from
distributors in neighbourhood malls, from financial institutions.

The industry should provide information about choice

Some sellers already provide information about the products
of their competitors (e.g. the U.S. company that provides five alternative quotations,
mentioned above). But consumers feel that most companies and brokers would be loath to
forego competitive advantage by promoting the products of other brokers or companies, so
comparative information would be more credible if it came from an independent source.
Other alternatives might include options similar to the 1-900 system being promoted in
Canada to provide automobile insurance information for a fee, but in the best of all
worlds consumers would feel more secure using an option that has been approved by the
industry as a whole, or is at least backed up by the reputation of an established company.

Companies should clean up outdated products, and create new products for changing times

Consumers believe that they are frequently asked to buy
“bells and whistles” for which they have no need, or to pay for excessive
coverage relative to possible payout. Some consumers, for example, are becoming more
interested in life benefits than death benefits. Others have opened home offices, but find
that existing home policies are inflexible and expensive to upgrade.

Design better, more flexible products for consumers who want to be more self-sufficient

There is a great and growing need to provide better choice
to consumers who realize that the government and Canada Pension Plan is not going to be
able to guarantee their future well-being. For example, there is a large and growing
pent-up demand for disability coverage, but the companies are doing a poor job of coming
up with innovative options. Because the existing products treat the coverage as a form of
unemployment insurance, the cost is inordinately expensive and there is no product within
the reach of the ordinary consumer. The insurance industry is missing a great opportunity
and, as unbundling and deregulation proceed, consumers may one day be able to buy this
kind of coverage from altogether different industries (e.g. “The Microsoft 2000 Home
Office and Disability Coverage Policy”). In addition, there is a need for value-added
products and services that complement the insurance product by providing peace of mind,
e.g., home assistance, cell phones, etc.

Devise “no frills” policies that provide essential coverage at reasonable price

Consumers and the industry have a very different idea of
what a basic, “plain vanilla” policy should offer. Consumers understand that
“bells and whistles” will be excluded, but they want full coverage on all the
essentials. It is imperative that full information and disclosure precede the sale of a
basic policy to manage expectations and avoid misleading the consumer about actual coverage.

But it is equally important that the industry come up with
a selection of simple, off-the-shelf products that do a good job of covering reasonably
standard situations. They should be reasonably priced, but consumers need to be informed
that the simplest policies for their needs are not always the cheapest. “No
frills” policies should not be for less affluent people only. In the same way that
the rich use supermarkets for their basic needs, they will buy “no frills” policies when appropriate.


Unfair practices can and do poison
relationships between industry and consumers. These practices include selling the wrong
product to maximize the return to the seller; failure to disclose when the customer’s real
needs are not being met; selling too much insurance for the customer’s needs; selling
insurance while pretending to be selling an investment vehicle; and cancelling a
long-standing policy after a single claim. By contrast, fair practices restore the trust
between consumer and industry, and minimize the need for outside intervention, mediation or regulation.

The important issue of privacy was a
recurring theme but deferred on account of the current focus and work on specific Privacy Codes.

Do the basic things well, and fair practices will result; fail to do this and abuses
will result

If the insurance industry provides quality information to
consumers, if it is open, discloses relevant data at the relevant time, if it provides
quality service throughout the process and a reasonable choice, the result will be fair
practice. The obverse, “unfair practices”, are almost always the result of
withholding information, misinforming consumers, stonewalling, hiding relevant information
and arbitrarily limiting choices. The way that companies compensate brokers, for example,
results in a whole series of unfair practices. When incentives offered by the companies to
brokers are not aligned with the best interests of the customers, unfair practices will
almost inevitably result. For example, the life commission structure generally encourages
brokers to push consumers to buy whole life policies, rather than term policies which are
generally a more cost-efficient option.

Consumers would favour the introduction or enforcement of
an “Ethics Code” by the industry or the regulators, but believe if the basic
things are done well, such codes would be unnecessary. As in the case of redress,
consumers see codes of fair practices as a parachute, but do not expect to have to jump
from the plane. Codes do, however, set expectations and standards for behaviour.

Consult with consumers and their organizations before doing anything affecting their rights

The industry should learn not to act unilaterally, even
with the best of intentions, when its actions will have a significant impact on the
consumer. For example, the Insurance Points System was devised by the industry partly to
ensure that everyone needing automobile coverage could get it, and to avoid exposing other
consumers to uninsured drivers. It has not succeeded in doing this, but even more
important, the Points System has been abused to put the consumer at a serious
disadvantage. Nothing infuriates consumers more than arbitrary decisions which cost them
considerable amounts of money for services they are compelled by law to buy. The Points
System should not have been initiated without detailed consultation with consumers (even
industry people heard about it first in the newspapers) and will be vigorously opposed by
them through the political system, costing the industry goodwill. When an issue enters the
political arena, or the courts, it is usually the sign that the process itself is
inadequate and needs to be restructured.

Encourage the development of insurance consumer expertise, in your own interest

The insurance industry should consider sponsoring a
consumer group or association to represent the consumer in insurance matters on an ongoing
basis. It — or individual companies and brokers — could use mailings and other outlets
to encourage consumers to become members, and publicize its (or their) own contribution.
Knowledgeable consumers, secure that they are well represented by consumer organizations,
will be far more receptive to the new more technology-intensive insurance industry that is emerging. The industry
could also create an independent consumer advisory board to report regularly to the industry.


Though consumers expect things such as
choice, service and competition to ensure their best needs are being met, they also want
the safety-net provided by government or self regulation, and by formal systems of control
and redress. Many codes of practice are excellent on paper, but they have to be
administered fairly, inexpensively and reasonably quickly to be effective.

The industry as a whole should offer a reliable
fall-back system of redress and, if it does not, individual companies should do so

Consumers prefer companies and brokers to “get it
right the first time”, but want the security of knowing that — if their problem is
inordinately side-tracked, or the process does not allow consumer input, or the outcome is
unfair — there will still be a reliable “Court of Appeal”. They feel that the
importance of insurance to individuals is too great to be left to chance, particularly
given the huge gap between knowledgeable sellers and the inexperienced buyer that characterizes the industry.

Most consumers are not primarily concerned whether the
industry is regulated or self-regulated. Their court of last resort could be run by a
government department, by a regulatory body or even by the industry as a whole. Failing this, individual companies
could earn competitive advantage by instituting and publicizing their own systems of redress.

Ideally, the industry should set up its own Ombudsman

There needs to be a stage in resolving disputes that comes
after appealing to the company, and before going to court. Ideally, in other words, there
needs to be a way of resolving disputes within the industry. The creation of an industry
ombudsman with the power (unlike that of the Ontario bank ombudsman announced shortly
after the panels were held) of enforcement was an idea which appealed to several of the
panelists. There are already bodies in the industry, such as the Registered Insurance
Brokers of Ontario (RIBO) and the Canadian Insurance Claim Managers Association (CICMA),
which could in theory provide the basis for a system of redress, but they are little known
to consumers and not set up to be comprehensive. CICMA was never set up as a consumer
redress organization and would require major modification to become one. RIBO, on the
other hand, is a self regulation body that has a consumer complaint mechanism built into the regulation.

Redress options should be widely publicized and easily accessible

Companies, brokers and the industry as a whole should treat
the system of redress as a tool, and not a burden. They also need to make it known that
such a system exists and how it can be accessed. There are a multitude of information
channels available. Companies and brokers, because of their more frequent contact with
customers, should actively publicize either an industry or a government system.

The system of redress should be modelled on best practices elsewhere

The panels did not suggest a blueprint for a system of
redress, but made it clear there were a number of precedents (such as Australia and New
Zealand*) which would provide a good starting point. Whatever the formal structure, the
system should be accessible to all, which means it has to be known to all and inexpensive
(or free) to access. It should allow for consumer input, and take this input seriously. It
should make decisions reasonably promptly. It should explain its decisions clearly, and publicly. It should be
authorized to name the parties where relevant. And it should be able to enforce its decisions.

* from the international research scan undertaken


Both the consumer and the industry panels were critical of
current marketplace practices in Canada. But, though they were free to discuss any issue
without restriction, neither panel chose to focus predominantly on current abuses. Instead
both panels focused on diagnosis and treatment rather than on recrimination.

The diagnosis yielded the 10 underlying problems
covered in the first main section of the Report, Identifying the gaps.
Essentially the panels thought that a number of critical gaps have opened up between the
industry and the consumer. Consumers have lost trust and confidence in the industry. They
feel more and more at sea trying to grapple with the growing complexity of insurance
issues. They want the industry to give them more, better, clearer, franker information to
equip them to fend for themselves. They want the industry to act in the best interests of
its customers, to become more efficient and accountable, to focus first on the needs of
its customers, and they want a more effective combination of personalized service and technological convenience.

The treatment of these underlying problems — the
building of bridges to close the gaps — is covered in the second section of this Report,
Closing the gaps. This section contains a detailed analysis of
what consumers are getting, what they want, and how panelists suggest the industry should go about supplying it.
There are numerous specific recommendations, but the panels emphasized that it was really for the industry to
determine feasible solutions. In this section the panels identified gaps and made recommendations in six distinct
areas: Education and Information; Openness and Disclosure; Service; Choice; Fair Practices; and Redress.

The panels concluded that insurance in the 21st century
will be very different from insurance today, and that the industry faces a formidable
challenge. It has to make a fundamental switch from a product-orientation to a
service-orientation. New consumer demands and revolutionary new technology will be
irresistible. The real question is whether change will be imposed on the industry or
whether the industry will be able to adapt fast enough to harness the new forces.

The only way it will be able to achieve this, the panels
concluded, will be to successfully serve the best interests of the consumer. By educating
and informing. By being open and frank. By providing service geared to the needs and
timetables of the buyer rather than the seller. By providing choice, not only in making
existing products and services more accessible, but also through creating innovative new ones. By treating
consumers fairly and giving them adequate, structured opportunities to seek redress where necessary.

Though this is a large and ambitious menu, and though
consumers are not impressed with the industry’s current performance in satisfying their
needs, it is striking that the panels were overwhelmingly optimistic that a new,
consumer-friendly, insurance industry is within reach. Panel members were unanimous that
the successful companies of the future will be the ones who listen carefully to what
consumers want, and do something about it.



Stuart Morley, Chair

Stuart is a certified management consultant. He was a
founding partner of Crosbie and Company, a niche merchant banking firm. Prior to this,
Stuart was for many years a senior consultant with Touche Ross Management Consultants
where he specialized in general management and helping clients with marketing, operations,
etc. He is former president of the American Marketing Association (Toronto Chapter).
Stuart completed his MBA at the University of Cape Town.


Helen Anderson became an active volunteer in the
Consumers’ Association of Canada in 1958. Since 1972, Helen has focused on insurance
issues, notably Ontario auto insurance. She has participated in numerous legislative
hearings and has a broad range of insurance experience. She is a well known consumer
advocate, consulted by both government and industry members. Helen is currently the
Consumer Association of Canada’s insurance volunteer in Ontario and serves on several
committees of the Coalition Against Insurance Fraud sponsored by the Insurance Bureau of
Canada. She holds a B.Com. from U.B.C.

Joyce Feinberg is on the Board of Directors of the
Consumers Council of Canada. She is a former assistant deputy minister with the Government
of Ontario, most recently holding positions at the Ministry of Environment and Energy and
the Ministry of Consumer and Commercial Relations. In this capacity she steered, in
partnership with consumer and business associations, the development of new consumer and
business practices legislation. She was chair of the Federal-Provincial Task Force on
Telemarketing and directed policy development for a wide range of consumer policy issues.
Joyce Feinberg was lead Ontario trade negotiator for international GATT, FTA and inter
provincial trade negotiations on alcoholic beverages. With industry associations,
management and unions, she developed competitiveness strategies for the Ontario wine and
grape industries and the Ontario beer industry. She has a Ph.D. in chemistry.

Joan Huzar has been a committed consumer advocate
since 1979. One of the founders of the Consumers Council of Canada, she currently serves
as its president. In former years she has been president of the Consumers’ Association of
Canada (Ontario), and a member of the national executive of the CAC. She currently sits as
one of the consumer representatives on the Board of Directors of the Ontario New Home
Warranty Program and serves as vice-chairman. She is also a member of the Huron/Rideau
Postal Service Customer Council. She holds an Honours Bachelor of Arts degree from York
University, and Bachelor of Library Science and Education degrees from the University of Toronto.

Sally Praskey is president of Praskey Communications
Inc., a writing/communications firm which specializes in freelance writing and editing, as
well as designing and developing content for home pages on the Internet’s World Wide Web.
She is editor of Insurance Canada, a “cybermall” on the World Wide Web, focusing
on the Canadian insurance industry. From 1991-1995, Sally was editor of Canadian
magazine. Prior to that, she edited several trade magazines for Maclean
Hunter Ltd. She has also worked in corporate communications for Magna International and
Husky Injection Molding. Sally holds a B.A. and B.Ed, University of Toronto.

Dick Vosburgh is Professor Emeritus, University of
Guelph. Dick is an internationally recognized authority on consumer matters. He is a
founding member of the Consumers Council of Canada and a current director. He has been a
professor at the School of Business at the University of Toronto and at the College of
Family and Consumer Studies of the University of Guelph where, as the first chair of the
Department of Consumer Studies, he established an interdisciplinary department concerned
with teaching and research related to consumer issues, consumer education, consumer
behavior and basic consumer products. He is a graduate of Indiana University and holds an M.B.A. and D.B.A.

John Watkin is vice president of the Citizens Forum
Advocating Insurance Review. His interest in becoming involved with CFAIR was stimulated
by personal experience. He has since written a paper on auto insurance reform. He is
retired after 30 years from the National Research Council where he worked on a variety of
technical and academic projects. His last assignment, in cooperation with the RCMP, was in
developing a method for identifying finger prints at the crime scene. John holds a
bachelor degree in chemistry from Cambridge, and Ph.D. in chemistry from the University of Wales.


Lawrie Savage, Chair

Lawrie Savage is a former superintendent of insurance for
the Government of Ontario. He has 30 years of experience in the Canadian insurance
industry and has held senior positions in both the life and property/casualty insurance
fields. In addition to his work with the Government of Ontario, he has extensive
experience with federal government regulation of financial institutions, having for eight
years been in charge of the Property/Casualty Insurance Division of the Office of the
Superintendent of Financial Institutions Canada. He is now with Coopers & Lybrand
Consulting, specializing in insurance regulation in emerging countries. Lawrie completed
his MBA at the University of Western Ontario and B.Sc. Mathematics at the University of Calgary.


Herb Beiles began his career with Crown Life
Insurance in the actuarial and systems departments. He later was responsible for group
pensions worldwide, the Canadian Group, Life and Pension divisions, the reinsurance
division and then the international division. In 1990, he became managing director and CEO
of Crown’s UK subsidiary, Crown Financial Management. In 1993 Herb took early retirement
and returned to Canada to form his own consulting practice providing actuarial and
strategic planning services in the financial services area. Herb is a Fellow of the
Canadian Institute of Actuaries and the Society of Actuaries, an Affiliate of the UK
Institute of Actuaries, a member of the American Academy of Actuaries and a US Enrolled Actuary.

Ted Belton is Director of Research, RBC Underwriting
Management Services Inc. Ted has had a lengthy career in the general insurance industry
encompassing underwriting, claims, marketing, administration, and management. He has
written several studies on the insurance marketplace and causes of industry cycles, and is
author of The Belton Report on insurance marketplace conditions and trends. Ted is a
member of the Insurance Institute of Ontario, The International Insurance Society and a
director of the Society of Insurance Research.

John Carpenter retired after 40 years of legal and
general management experience in the insurance and mining industries. He was vice
president of the general sales division at London Life Insurance Company, is a Chartered
Life Underwriter, and held a number of leadership positions, including deputy Chairman, of
Wellington Insurance. John is a board member of the CIBC Insurance� group of companies
and chairman of their Risk Management and Conduct Review Committees.

Herb Hickling has 40 years of experience in the
insurance industry in Ontario, Manitoba and British Columbia. While at Allstate Insurance,
he worked in underwriting, claim adjudication, market development, industry and public
relations, and consumer research. He also represented the company on industry committees
studying insurance reform, product development, consumerism and public relations. Herb was
executive vice-president of the Allstate Foundation, past president of the Traffic Injury
Research Foundation, and heavily involved with the Ontario Safety League.

Jim Jasper founded Talisman Consulting Services
Ltd., after many years in the general insurance industry with Transamerica Corporation,
American Express and Trilon Financial Corporation. Jim consults mainly in the financial
services sector helping clients with marketing focus, distribution methods and change management.

Robert McCormick retired as President and CEO of
Chateau Insurance in 1994 and has recently completed a stint as interim executive director
of St. John Ambulance. He has over 30 years in the insurance industry with Chateau,
Reliance and Travellers Insurance Companies. Robert has been chairman of the Board of the
Insurance Bureau of Canada, the Insurer’s Advisory Organization and Underwriter’s
Laboratories of Canada. In 1966 he was made a Fellow of the Insurance Institute of Canada.

Bill Weafer held a variety of management positions
at The Co-operators in a 25 year career, including district, regional and divisional
management. He was also senior vice president of marketing and development, a director of
HB COSECO, Security Life and Cooperative Trust Company of Canada. He has served on the
Board of the Insurance Bureau of Canada and the Association of Canadian Insurers. After
leaving The Co-operators, Bill assisted the Ontario Government with their review of
automobile insurance. Currently he is owner of a specialty retail business and volunteers
for a number of community organizations.