Distribution of insurance and incentives: Both insurers and intermediaries must follow new guidelines

Insurers regularly use a distribution network of insurance intermediaries, including managing general agents, brokers and agents, to sell insurance products. Each province/territory has exclusive authority over doing business in the insurance market and each province/territory has its own regulatory approach to doing business. Regardless of differences in regulatory approaches, there is a general expectation that insurance customers will be treated fairly.

Ultimately, insurers are responsible for treating insurance customers fairly; However, recent guidance from the Canadian Council of Insurance Regulators (“CCIR”) and Canadian Insurance Services Regulatory Organizations (“CISRO”) introduces principles and expectations for the implementation and administration of incentive programs in the distribution of insurance products, and clarifies that by insurers and Intermediaries are expected to comply.


In September 2018, CCIR and CISRO published joint guidelines on insurance conduct and fair treatment of customers (“FTC Guidelines”). The FTC guidance was based on the Insurance Principles of the International Association of Insurance Supervisors. CCIR and CISRO provided the FTC Guidance to assist insurers and insurance intermediaries in achieving fair treatment of customers and increasing public and consumer confidence in the Canadian insurance market.

The FTC guidelines addressed, in part, compensation, reward strategies, and evaluating performance in the insurance market and helping to achieve outcomes related to fair treatment of customers. Following the release of the FTC’s guidance, industry participants advised regulators that more clarity was needed on expectations for insurers’ and intermediaries’ business conduct, and particularly related to sales incentive programs.

In response to industry inquiries, on November 30, 2022, the CCIR and CISRO released the Incentive Management Guidance (“IMG”). The IMG is a joint guide from CCIR and CISRO intended to provide additional details and guidance related to incentives.

Although the IMG states expectations that incentive agreements do not undermine the FTC, it recognizes that insurers and intermediaries compensate employees and other individuals or organizations acting on their behalf in the sale and servicing of insurance products.

The IMG provides insurers and intermediaries with the necessary latitude to establish the necessary strategies, policies, processes, procedures and controls to facilitate the achievement of such outcomes and to apply them based on the nature, size and complexity of their activities, with the requirements the representative are taken into account. Compliance with regulatory obligations to facilitate the achievement of the client outcomes outlined in this guide.

The IMG defined “incentives” as monetary and non-monetary rewards offered by insurers or intermediaries to their employees and other persons or organizations acting on their behalf in the sale and servicing of insurance products.

The IMG sets out four principles related to incentives:

(1) Governance: Overall responsibility for FTC rests with the board and/or senior management level, who design, approve, implement and monitor compliance with policies and procedures to ensure customers are treated fairly.

(2) Design and management of incentive agreements: Insurers and intermediaries are responsible for the customer experience. When properly designed and implemented, incentive agreements can reduce the risk of unfair outcomes for clients.

(3) Risks of unfair outcomes for customers: Insurers and intermediaries are expected to regularly identify and assess the risks of unfair outcomes for customers, which are more likely to occur when insurers, intermediaries, or persons and entities acting on their behalf, make payments or Receive incentives for practices that do not meet expected FTC results.

(4) Controls: Insurers and intermediaries should have controls in place to facilitate:

Identify inappropriate sales, improper sales and improper practices resulting from incentive agreements to take necessary corrective action. Determining the residual risk of unfair outcomes for clients. Ensure that the design and implementation of incentive agreements achieve expected results for FTC

CISRO and CCIR explained in the IMG that the IMG applies to insurers and intermediaries that pay indemnities and/or draft incentive agreements. CISRO pointed out that insurance intermediaries cannot be relieved of their own responsibility, but explained in the IMG that the insurer, as the ultimate risk bearer, is responsible for the fair treatment of customers.

Insurers and brokers are expected to comply with IMG

Last month, CCIR and CISRO issued a Q&A document on the IMG (the “Q&A”). The Questions and Answers addressed a number of issues related to the shared responsibility of insurers and brokers in developing incentive programs that “avoid or properly manage conflicts of interest.” CISRO and CCIR clarified in the questions and answers that there is no intention for insurers to control their brokers’ incentive programs.

The Q&A document specifically states, “The IMG does not prohibit any inducement practice.” It also makes it clear that inducements need not be purely monetary in nature. Examples of inducements that are inducements to sell an insurance product include: in-kind benefits such as travel, merchandise, hospitality, entertainment, titles, memberships, participation in contests, referrals from insurance customers, and access to services related to performance goals.

Finally, the Q&A document clarifies that the IMG is “principles-based guidance” that provides the necessary latitude to set strategies, policies, processes, procedures and controls to achieve the four principles identified in the IMG . CISRO and CCIR clarified that the IMG does not prohibit any particular inducement practice.


The effective date of the IMG was November 30, 2022 (the date of its publication). CCIR and CISRO expect insurers and intermediaries to implement effectors to incorporate the IMG into the design and management of their incentive arrangements. When implementing an incentive program, insurers and intermediaries must also be aware of provincial/territorial legislation that may prohibit the payment of indemnification to unlicensed intermediaries or other provisions addressing unfair or fraudulent practices. For example, some provinces may be required by law to disclose incentives paid within the distribution network.